Correlation Between Inverse Government and Virginia Bond

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

Diversification Opportunities for Inverse Government and Virginia Bond

-0.31

Correlation Coefficient

Inverse Government  Virginia Bond

Very good diversification

The 3 months correlation between Inverse and Virginia is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Virginia Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virginia Bond 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 Virginia Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virginia Bond has no effect on the direction of Inverse Government i.e., Inverse Government and Virginia Bond go up and down completely randomly.

Pair Corralation between Inverse Government and Virginia Bond

Assuming the 90 days horizon Inverse Government Long is expected to generate 2.68 times more return on investment than Virginia Bond. However, Inverse Government is 2.68 times more volatile than Virginia Bond Fund. It trades about 0.19 of its potential returns per unit of risk. Virginia Bond Fund is currently generating about 0.02 per unit of risk. If you would invest  17,358  in Inverse Government Long on September 14, 2024 and sell it today you would earn a total of  1,795  from holding Inverse Government Long or generate 10.34% return on investment over 90 days.

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

Inverse Government Long  vs.  Virginia Bond Fund

Inverse Government Long

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 14 (%) 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.

Virginia Bond

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Virginia Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Virginia Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse Government and Virginia Bond

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

The idea behind Inverse Government Long and Virginia Bond Fund 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.

Check out your portfolio center.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.