Correlation Between Short-term Treasury and Permanent Portfolio

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

By analyzing existing cross correlation between Short Term Treasury Portfolio and Permanent Portfolio Class, you can compare the effects of market volatilities on Short-term Treasury and Permanent Portfolio 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 Short-term Treasury with a short position of Permanent Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Treasury and Permanent Portfolio.

Diversification Opportunities for Short-term Treasury and Permanent Portfolio

0.67

Correlation Coefficient

Short-term Treasury  Permanent Portfolio

Poor diversification

The 3 months correlation between Short-term and Permanent is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Treasury Portfolio and Permanent Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permanent Portfolio Class and Short-term Treasury 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 Short Term Treasury Portfolio are associated (or correlated) with Permanent Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permanent Portfolio Class has no effect on the direction of Short-term Treasury i.e., Short-term Treasury and Permanent Portfolio go up and down completely randomly.

Pair Corralation between Short-term Treasury and Permanent Portfolio

Assuming the 90 days horizon Short-term Treasury is expected to generate 1.02 times less return on investment than Permanent Portfolio. But when comparing it to its historical volatility, Short Term Treasury Portfolio is 13.17 times less risky than Permanent Portfolio. It trades about 0.62 of its potential returns per unit of risk. Permanent Portfolio Class is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,231  in Permanent Portfolio Class on December 4, 2024 and sell it today you would earn a total of  39.00  from holding Permanent Portfolio Class or generate 0.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Short Term Treasury Portfolio  vs.  Permanent Portfolio Class

Short Term Treasury

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Treasury Portfolio are ranked lower than 31 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Short-term Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Permanent Portfolio Class

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Permanent Portfolio Class are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Permanent Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Short-term Treasury and Permanent Portfolio

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

The idea behind Short Term Treasury Portfolio and Permanent Portfolio Class 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.