Correlation Between Government Securities and Large Capital

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

Diversification Opportunities for Government Securities and Large Capital

-0.66

Correlation Coefficient

Government Securities  Large Capital

Excellent diversification

The 3 months correlation between Government and Large is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Large Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capital 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 Large Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capital Growth has no effect on the direction of Government Securities i.e., Government Securities and Large Capital go up and down completely randomly.

Pair Corralation between Government Securities and Large Capital

Assuming the 90 days horizon Government Securities Fund is expected to generate 0.1 times more return on investment than Large Capital. However, Government Securities Fund is 9.85 times less risky than Large Capital. It trades about 0.14 of its potential returns per unit of risk. Large Capital Growth is currently generating about -0.14 per unit of risk. If you would invest  903.00  in Government Securities Fund on December 30, 2024 and sell it today you would earn a total of  23.00  from holding Government Securities Fund or generate 2.55% return on investment over 90 days.

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

Government Securities Fund  vs.  Large Capital Growth

Government Securities

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Government Securities Fund are ranked lower than 10 (%) 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.

Large Capital Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Capital Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Government Securities and Large Capital

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

The idea behind Government Securities Fund and Large Capital Growth 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.