Correlation Between Short-term Government and Multi-asset Real

Can any of the company-specific risk be diversified away by investing in both Short-term Government and Multi-asset Real 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 Short-term Government and Multi-asset Real into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Short Term Government Fund and Multi Asset Real Return, you can compare the effects of market volatilities on Short-term Government and Multi-asset Real 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 Short-term Government with a short position of Multi-asset Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Multi-asset Real.

Diversification Opportunities for Short-term Government and Multi-asset Real

-0.26

Correlation Coefficient

Short-term Government  Multi-asset Real

Very good diversification

The 3 months correlation between Short-term and Multi-asset is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Multi Asset Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Asset Real and Short-term 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 Short Term Government Fund are associated (or correlated) with Multi-asset Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Asset Real has no effect on the direction of Short-term Government i.e., Short-term Government and Multi-asset Real go up and down completely randomly.

Pair Corralation between Short-term Government and Multi-asset Real

Assuming the 90 days horizon Short-term Government is expected to generate 5.96 times less return on investment than Multi-asset Real. But when comparing it to its historical volatility, Short Term Government Fund is 10.03 times less risky than Multi-asset Real. It trades about 0.08 of its potential returns per unit of risk. Multi Asset Real Return is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,009  in Multi Asset Real Return on October 5, 2024 and sell it today you would earn a total of  298.00  from holding Multi Asset Real Return or generate 14.83% return on investment over 90 days.

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

Short Term Government Fund  vs.  Multi Asset Real Return

Short Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Multi Asset Real

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Asset Real Return are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Multi-asset Real may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Short-term Government and Multi-asset Real

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

The idea behind Short Term Government Fund and Multi Asset Real Return 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.