Correlation Between US Treasury and LJIM

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

By analyzing existing cross correlation between US Treasury 6 and LJIM, you can compare the effects of market volatilities on US Treasury and LJIM 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 LJIM. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Treasury and LJIM.

Diversification Opportunities for US Treasury and LJIM

0.93

Correlation Coefficient

US Treasury  LJIM

Almost no diversification

The 3 months correlation between XBIL and LJIM is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding US Treasury 6 and LJIM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LJIM 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 6 are associated (or correlated) with LJIM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LJIM has no effect on the direction of US Treasury i.e., US Treasury and LJIM go up and down completely randomly.

Pair Corralation between US Treasury and LJIM

If you would invest  4,983  in US Treasury 6 on October 3, 2024 and sell it today you would earn a total of  21.00  from holding US Treasury 6 or generate 0.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	4.76%
Values	Daily Returns

US Treasury 6  vs.  LJIM

US Treasury 6

Risk-Adjusted Performance

56 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in US Treasury 6 are ranked lower than 56 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, US Treasury is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

LJIM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LJIM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, LJIM is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with US Treasury and LJIM

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

The idea behind US Treasury 6 and LJIM 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.