Correlation Between Government Long and Sp Midcap

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

By analyzing existing cross correlation between Government Long Bond and Sp Midcap 400, you can compare the effects of market volatilities on Government Long and Sp Midcap 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 Government Long with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Long and Sp Midcap.

Diversification Opportunities for Government Long and Sp Midcap

-0.69

Correlation Coefficient

Government Long  Sp Midcap

Excellent diversification

The 3 months correlation between Government and RYBHX is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Government Long Bond and Sp Midcap 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap 400 and Government Long 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 Government Long Bond are associated (or correlated) with Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap 400 has no effect on the direction of Government Long i.e., Government Long and Sp Midcap go up and down completely randomly.

Pair Corralation between Government Long and Sp Midcap

Assuming the 90 days horizon Government Long Bond is expected to generate 0.75 times more return on investment than Sp Midcap. However, Government Long Bond is 1.33 times less risky than Sp Midcap. It trades about 0.1 of its potential returns per unit of risk. Sp Midcap 400 is currently generating about -0.12 per unit of risk. If you would invest  10,070  in Government Long Bond on December 30, 2024 and sell it today you would earn a total of  621.00  from holding Government Long Bond or generate 6.17% return on investment over 90 days.

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

Government Long Bond  vs.  Sp Midcap 400

Government Long Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Government Long Bond are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Government Long may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sp Midcap 400

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sp Midcap 400 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical 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 Government Long and Sp Midcap

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

The idea behind Government Long Bond and Sp Midcap 400 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.