Correlation Between Government Securities and Small Capitalization
Can any of the company-specific risk be diversified away by investing in both Government Securities and Small Capitalization 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 Small Capitalization 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 Small Capitalization Portfolio, you can compare the effects of market volatilities on Government Securities and Small Capitalization 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 Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Small Capitalization.
Diversification Opportunities for Government Securities and Small Capitalization
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Government and Small is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization 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 Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Government Securities i.e., Government Securities and Small Capitalization go up and down completely randomly.
Pair Corralation between Government Securities and Small Capitalization
Assuming the 90 days horizon Government Securities Fund is expected to generate 0.22 times more return on investment than Small Capitalization. However, Government Securities Fund is 4.5 times less risky than Small Capitalization. It trades about 0.2 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about -0.13 per unit of risk. If you would invest 870.00 in Government Securities Fund on December 2, 2024 and sell it today you would earn a total of 19.00 from holding Government Securities Fund or generate 2.18% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Government Securities Fund vs. Small Capitalization Portfolio
Performance |
Timeline |
Government Securities |
Small Capitalization |
Government Securities and Small Capitalization Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Government Securities and Small Capitalization
The main advantage of trading using opposite Government Securities and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Small Capitalization 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 Small Capitalization will offset losses from the drop in Small Capitalization's long position.Government Securities vs. Fznopx | Government Securities vs. Rational Dividend Capture | Government Securities vs. Aam Select Income | Government Securities vs. Fkhemx |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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