Correlation Between US Treasury and US Treasury

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

By analyzing existing cross correlation between US Treasury 20 and US Treasury 3, you can compare the effects of market volatilities on US Treasury and US Treasury 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 Treasury with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Treasury and US Treasury.

Diversification Opportunities for US Treasury and US Treasury

0.63

Correlation Coefficient

US Treasury  US Treasury

Poor diversification

The 3 months correlation between UTWY and UTRE is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding US Treasury 20 and US Treasury 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 3 and US Treasury 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 Treasury 20 are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 3 has no effect on the direction of US Treasury i.e., US Treasury and US Treasury go up and down completely randomly.

Pair Corralation between US Treasury and US Treasury

Given the investment horizon of 90 days US Treasury 20 is expected to under-perform the US Treasury. In addition to that, US Treasury is 4.53 times more volatile than US Treasury 3. It trades about -0.52 of its total potential returns per unit of risk. US Treasury 3 is currently generating about -0.1 per unit of volatility. If you would invest  4,897  in US Treasury 3 on October 11, 2024 and sell it today you would lose (12.00) from holding US Treasury 3 or give up 0.25% of portfolio value over 90 days.

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

US Treasury 20  vs.  US Treasury 3

US Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, US Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

US Treasury 3

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 3 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, US Treasury is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with US Treasury and US Treasury

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

The idea behind US Treasury 20 and US Treasury 3 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.