Correlation Between Us Government and Ultrashort Emerging

Can any of the company-specific risk be diversified away by investing in both Us Government and Ultrashort Emerging at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Us Government and Ultrashort Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Us Government Plus and Ultrashort Emerging Markets, you can compare the effects of market volatilities on Us Government and Ultrashort Emerging and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Us Government with a short position of Ultrashort Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Ultrashort Emerging.

Diversification Opportunities for Us Government and Ultrashort Emerging

-0.41

Correlation Coefficient

Us Government  Ultrashort Emerging

Very good diversification

The 3 months correlation between GVPIX and Ultrashort is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Plus and Ultrashort Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Emerging and Us Government is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Us Government Plus are associated (or correlated) with Ultrashort Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Emerging has no effect on the direction of Us Government i.e., Us Government and Ultrashort Emerging go up and down completely randomly.

Pair Corralation between Us Government and Ultrashort Emerging

Assuming the 90 days horizon Us Government Plus is expected to under-perform the Ultrashort Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, Us Government Plus is 2.5 times less risky than Ultrashort Emerging. The mutual fund trades about -0.32 of its potential returns per unit of risk. The Ultrashort Emerging Markets is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,353  in Ultrashort Emerging Markets on September 24, 2024 and sell it today you would lose (23.00) from holding Ultrashort Emerging Markets or give up 1.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Us Government Plus  vs.  Ultrashort Emerging Markets

Us Government Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Ultrashort Emerging

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Emerging Markets are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrashort Emerging may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Us Government and Ultrashort Emerging

The main advantage of trading using opposite Us Government and Ultrashort Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Ultrashort Emerging can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ultrashort Emerging will offset losses from the drop in Ultrashort Emerging's long position.

The idea behind Us Government Plus and Ultrashort Emerging Markets pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.