Correlation Between Short-term Government and Undiscovered Managers

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

Diversification Opportunities for Short-term Government and Undiscovered Managers

-0.06

Correlation Coefficient

Short-term Government  Undiscovered Managers

Good diversification

The 3 months correlation between Short-term and Undiscovered is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Undiscovered Managers Behavior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Undiscovered Managers 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 Undiscovered Managers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Undiscovered Managers has no effect on the direction of Short-term Government i.e., Short-term Government and Undiscovered Managers go up and down completely randomly.

Pair Corralation between Short-term Government and Undiscovered Managers

Assuming the 90 days horizon Short-term Government is expected to generate 1.31 times less return on investment than Undiscovered Managers. But when comparing it to its historical volatility, Short Term Government Fund is 8.11 times less risky than Undiscovered Managers. It trades about 0.1 of its potential returns per unit of risk. Undiscovered Managers Behavioral is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,247  in Undiscovered Managers Behavioral on October 5, 2024 and sell it today you would earn a total of  228.00  from holding Undiscovered Managers Behavioral or generate 3.15% 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.  Undiscovered Managers Behavior

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.

Undiscovered Managers

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short-term Government and Undiscovered Managers

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

The idea behind Short Term Government Fund and Undiscovered Managers Behavioral 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.