Correlation Between Us Government and Foreign Bond
Can any of the company-specific risk be diversified away by investing in both Us Government and Foreign 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 Us Government and Foreign Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Government Securities and Foreign Bond Fund, you can compare the effects of market volatilities on Us Government and Foreign 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 Us Government with a short position of Foreign Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Foreign Bond.
Diversification Opportunities for Us Government and Foreign Bond
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between UGSDX and Foreign is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Foreign Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Bond and Us 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 Us Government Securities are associated (or correlated) with Foreign Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Bond has no effect on the direction of Us Government i.e., Us Government and Foreign Bond go up and down completely randomly.
Pair Corralation between Us Government and Foreign Bond
Assuming the 90 days horizon Us Government Securities is expected to generate 0.3 times more return on investment than Foreign Bond. However, Us Government Securities is 3.3 times less risky than Foreign Bond. It trades about 0.13 of its potential returns per unit of risk. Foreign Bond Fund is currently generating about -0.07 per unit of risk. If you would invest 193.00 in Us Government Securities on October 25, 2024 and sell it today you would earn a total of 2.00 from holding Us Government Securities or generate 1.04% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 98.33% |
Values | Daily Returns |
Us Government Securities vs. Foreign Bond Fund
Performance |
Timeline |
Us Government Securities |
Foreign Bond |
Us Government and Foreign Bond Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Us Government and Foreign Bond
The main advantage of trading using opposite Us Government and Foreign Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Foreign 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 Foreign Bond will offset losses from the drop in Foreign Bond's long position.Us Government vs. Putnam Money Market | Us Government vs. Pioneer Money Market | Us Government vs. Elfun Government Money | Us Government vs. Cref Money Market |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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