Correlation Between Government Securities and Aggressive Growth

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

Diversification Opportunities for Government Securities and Aggressive Growth

-0.46

Correlation Coefficient

Government Securities  Aggressive Growth

Very good diversification

The 3 months correlation between Government and Aggressive is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Aggressive Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Growth 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 Aggressive Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Growth has no effect on the direction of Government Securities i.e., Government Securities and Aggressive Growth go up and down completely randomly.

Pair Corralation between Government Securities and Aggressive Growth

Assuming the 90 days horizon Government Securities is expected to generate 4.42 times less return on investment than Aggressive Growth. But when comparing it to its historical volatility, Government Securities Fund is 4.67 times less risky than Aggressive Growth. It trades about 0.09 of its potential returns per unit of risk. Aggressive Growth Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,913  in Aggressive Growth Fund on September 24, 2024 and sell it today you would earn a total of  1,023  from holding Aggressive Growth Fund or generate 17.3% return on investment over 90 days.

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

Government Securities Fund  vs.  Aggressive Growth Fund

Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Government Securities Fund has generated negative risk-adjusted returns adding no value to fund investors. 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.

Aggressive Growth

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Growth Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Aggressive Growth 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 Aggressive Growth

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

The idea behind Government Securities Fund and Aggressive Growth Fund 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.