Correlation Between Short-term Fund and Short-term Treasury

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

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

Diversification Opportunities for Short-term Fund and Short-term Treasury

0.84

Correlation Coefficient

Short-term Fund  Short-term Treasury

Very poor diversification

The 3 months correlation between Short-term and Short-term is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund R and Short Term Treasury Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Treasury and Short-term Fund 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 Fund R are associated (or correlated) with Short-term Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Treasury has no effect on the direction of Short-term Fund i.e., Short-term Fund and Short-term Treasury go up and down completely randomly.

Pair Corralation between Short-term Fund and Short-term Treasury

Assuming the 90 days horizon Short-term Fund is expected to generate 1.05 times less return on investment than Short-term Treasury. In addition to that, Short-term Fund is 1.81 times more volatile than Short Term Treasury Portfolio. It trades about 0.22 of its total potential returns per unit of risk. Short Term Treasury Portfolio is currently generating about 0.41 per unit of volatility. If you would invest  6,500  in Short Term Treasury Portfolio on December 20, 2024 and sell it today you would earn a total of  80.00  from holding Short Term Treasury Portfolio or generate 1.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Short Term Fund R  vs.  Short Term Treasury Portfolio

Short Term Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Fund R are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short-term Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 32 (%) 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.

Pair Trading with Short-term Fund and Short-term Treasury

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

The idea behind Short Term Fund R and Short Term Treasury Portfolio 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.