Correlation Between Government Securities and Government Long

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

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

Diversification Opportunities for Government Securities and Government Long

0.92

Correlation Coefficient

Government Securities  Government Long

Almost no diversification

The 3 months correlation between Government and Government is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Government Long Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Long Bond and Government Securities 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 Government Securities Fund are associated (or correlated) with Government Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Long Bond has no effect on the direction of Government Securities i.e., Government Securities and Government Long go up and down completely randomly.

Pair Corralation between Government Securities and Government Long

Assuming the 90 days horizon Government Securities is expected to generate 2.57 times less return on investment than Government Long. But when comparing it to its historical volatility, Government Securities Fund is 3.92 times less risky than Government Long. It trades about 0.15 of its potential returns per unit of risk. Government Long Bond is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,070  in Government Long Bond on December 26, 2024 and sell it today you would earn a total of  585.00  from holding Government Long Bond or generate 5.81% return on investment over 90 days.

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

Government Securities Fund  vs.  Government Long Bond

Government Securities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Government Securities Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Government Securities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Government Long Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Government Long Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Government Long is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Government Securities and Government Long

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

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