Correlation Between Micro E and Five Year

Can any of the company-specific risk be diversified away by investing in both Micro E and Five Year 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 Micro E and Five Year into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Micro E mini Russell and Five Year Treasury Note, you can compare the effects of market volatilities on Micro E and Five Year 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 Micro E with a short position of Five Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and Five Year.

Diversification Opportunities for Micro E and Five Year

-0.83

Correlation Coefficient

Micro E  Five Year

Pay attention - limited upside

The 3 months correlation between Micro and Five is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and Five Year Treasury Note in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Year Treasury and Micro E 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 Micro E mini Russell are associated (or correlated) with Five Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Year Treasury has no effect on the direction of Micro E i.e., Micro E and Five Year go up and down completely randomly.

Pair Corralation between Micro E and Five Year

Assuming the 90 days trading horizon Micro E mini Russell is expected to under-perform the Five Year. In addition to that, Micro E is 5.4 times more volatile than Five Year Treasury Note. It trades about -0.12 of its total potential returns per unit of risk. Five Year Treasury Note is currently generating about 0.12 per unit of volatility. If you would invest  10,640  in Five Year Treasury Note on December 30, 2024 and sell it today you would earn a total of  179.00  from holding Five Year Treasury Note or generate 1.68% return on investment over 90 days.

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

Micro E mini Russell  vs.  Five Year Treasury Note

Micro E mini

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micro E mini Russell has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Micro E mini Russell shareholders.

Five Year Treasury

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Year Treasury Note are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Five Year is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Micro E and Five Year

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

The idea behind Micro E mini Russell and Five Year Treasury Note 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.