Correlation Between Growth Fund and Government Securities

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

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

Diversification Opportunities for Growth Fund and Government Securities

-0.74

Correlation Coefficient

Growth Fund  Government Securities

Pay attention - limited upside

The 3 months correlation between Growth and Government is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund Growth and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities and Growth Fund 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 Growth Fund Growth are associated (or correlated) with Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Growth Fund i.e., Growth Fund and Government Securities go up and down completely randomly.

Pair Corralation between Growth Fund and Government Securities

Assuming the 90 days horizon Growth Fund Growth is expected to generate 2.47 times more return on investment than Government Securities. However, Growth Fund is 2.47 times more volatile than Government Securities Fund. It trades about 0.11 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.05 per unit of risk. If you would invest  1,272  in Growth Fund Growth on September 4, 2024 and sell it today you would earn a total of  475.00  from holding Growth Fund Growth or generate 37.34% return on investment over 90 days.

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

Growth Fund Growth  vs.  Government Securities Fund

Growth Fund Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund Growth are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Growth Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Growth Fund and Government Securities

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

The idea behind Growth Fund Growth and Government Securities 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.