Correlation Between Long-term and Great-west

Can any of the company-specific risk be diversified away by investing in both Long-term and Great-west 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 Long-term and Great-west into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Long Term Government Fund and Great West Government Mortgage, you can compare the effects of market volatilities on Long-term and Great-west 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 Long-term with a short position of Great-west. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long-term and Great-west.

Diversification Opportunities for Long-term and Great-west

0.82

Correlation Coefficient

Long-term  Great-west

Very poor diversification

The 3 months correlation between Long-term and Great-west is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Great West Government Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Government and Long-term 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 Long Term Government Fund are associated (or correlated) with Great-west. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Government has no effect on the direction of Long-term i.e., Long-term and Great-west go up and down completely randomly.

Pair Corralation between Long-term and Great-west

Assuming the 90 days horizon Long Term Government Fund is expected to under-perform the Great-west. But the mutual fund apears to be less risky and, when comparing its historical volatility, Long Term Government Fund is 1.53 times less risky than Great-west. The mutual fund trades about -0.62 of its potential returns per unit of risk. The Great West Government Mortgage is currently generating about -0.36 of returns per unit of risk over similar time horizon. If you would invest  846.00  in Great West Government Mortgage on October 10, 2024 and sell it today you would lose (51.00) from holding Great West Government Mortgage or give up 6.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Long Term Government Fund  vs.  Great West Government Mortgage

Long Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Long Term Government Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Great West Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great West Government Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Long-term and Great-west

The main advantage of trading using opposite Long-term and Great-west positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long-term position performs unexpectedly, Great-west 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 Great-west will offset losses from the drop in Great-west's long position.

The idea behind Long Term Government Fund and Great West Government Mortgage 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.