Correlation Between Inverse Government and Select Fund

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

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

Diversification Opportunities for Inverse Government and Select Fund

0.66

Correlation Coefficient

Inverse Government  Select Fund

Poor diversification

The 3 months correlation between Inverse and Select is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Select Fund C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund C and Inverse Government 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 Inverse Government Long are associated (or correlated) with Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund C has no effect on the direction of Inverse Government i.e., Inverse Government and Select Fund go up and down completely randomly.

Pair Corralation between Inverse Government and Select Fund

Assuming the 90 days horizon Inverse Government is expected to generate 2.08 times less return on investment than Select Fund. But when comparing it to its historical volatility, Inverse Government Long is 1.31 times less risky than Select Fund. It trades about 0.05 of its potential returns per unit of risk. Select Fund C is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,129  in Select Fund C on September 13, 2024 and sell it today you would earn a total of  1,828  from holding Select Fund C or generate 22.49% return on investment over 90 days.

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

Inverse Government Long  vs.  Select Fund C

Inverse Government Long

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Government may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Select Fund C

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund C are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Select Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Inverse Government and Select Fund

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

The idea behind Inverse Government Long and Select Fund C 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.