Correlation Between Touchstone Large and Inverse Government

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

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

Diversification Opportunities for Touchstone Large and Inverse Government

0.61

Correlation Coefficient

Touchstone Large  Inverse Government

Poor diversification

The 3 months correlation between Touchstone and Inverse is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Large Cap and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long and Touchstone Large 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 Touchstone Large Cap are associated (or correlated) with Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Touchstone Large i.e., Touchstone Large and Inverse Government go up and down completely randomly.

Pair Corralation between Touchstone Large and Inverse Government

Assuming the 90 days horizon Touchstone Large is expected to generate 1.03 times less return on investment than Inverse Government. But when comparing it to its historical volatility, Touchstone Large Cap is 1.47 times less risky than Inverse Government. It trades about 0.06 of its potential returns per unit of risk. Inverse Government Long is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  15,512  in Inverse Government Long on October 4, 2024 and sell it today you would earn a total of  3,050  from holding Inverse Government Long or generate 19.66% return on investment over 90 days.

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

Touchstone Large Cap  vs.  Inverse Government Long

Touchstone Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Touchstone Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Government Long

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 1 (%) 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.

Pair Trading with Touchstone Large and Inverse Government

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

The idea behind Touchstone Large Cap and Inverse Government Long 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.