Correlation Between Inverse Government and Quantitative

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

Diversification Opportunities for Inverse Government and Quantitative

0.57

Correlation Coefficient

Inverse Government  Quantitative

Very weak diversification

The 3 months correlation between Inverse and Quantitative is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Quantitative U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative U S 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 Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative U S has no effect on the direction of Inverse Government i.e., Inverse Government and Quantitative go up and down completely randomly.

Pair Corralation between Inverse Government and Quantitative

Assuming the 90 days horizon Inverse Government is expected to generate 1.44 times less return on investment than Quantitative. But when comparing it to its historical volatility, Inverse Government Long is 1.58 times less risky than Quantitative. It trades about 0.11 of its potential returns per unit of risk. Quantitative U S is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,546  in Quantitative U S on September 3, 2024 and sell it today you would earn a total of  132.00  from holding Quantitative U S or generate 8.54% return on investment over 90 days.

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

Inverse Government Long  vs.  Quantitative U S

Inverse Government Long

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inverse Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Quantitative U S

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Inverse Government and Quantitative

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

The idea behind Inverse Government Long and Quantitative U S 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.