Correlation Between Government Long and Biotechnology Fund

Can any of the company-specific risk be diversified away by investing in both Government Long and Biotechnology Fund 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 Biotechnology Fund 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 Biotechnology Fund Class, you can compare the effects of market volatilities on Government Long and Biotechnology Fund 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 Biotechnology Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Long and Biotechnology Fund.

Diversification Opportunities for Government Long and Biotechnology Fund

-0.02

Correlation Coefficient

Government Long  Biotechnology Fund

Good diversification

The 3 months correlation between Government and Biotechnology is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Government Long Bond and Biotechnology Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Fund Class 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 Biotechnology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Fund Class has no effect on the direction of Government Long i.e., Government Long and Biotechnology Fund go up and down completely randomly.

Pair Corralation between Government Long and Biotechnology Fund

Assuming the 90 days horizon Government Long Bond is expected to generate 32.39 times more return on investment than Biotechnology Fund. However, Government Long is 32.39 times more volatile than Biotechnology Fund Class. It trades about 0.17 of its potential returns per unit of risk. Biotechnology Fund Class is currently generating about -0.12 per unit of risk. If you would invest  2,246  in Government Long Bond on November 28, 2024 and sell it today you would earn a total of  8,416  from holding Government Long Bond or generate 374.71% return on investment over 90 days.

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

Government Long Bond  vs.  Biotechnology Fund Class

Government Long Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Government Long Bond are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Government Long showed solid returns over the last few months and may actually be approaching a breakup point.

Biotechnology Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biotechnology Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Government Long and Biotechnology Fund

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

The idea behind Government Long Bond and Biotechnology Fund 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.