Correlation Between 30 Day and 10 Year

Can any of the company-specific risk be diversified away by investing in both 30 Day and 10 Year 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 30 Day and 10 Year into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 30 Day Fed and 10 Year T Note Futures, you can compare the effects of market volatilities on 30 Day and 10 Year 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 30 Day with a short position of 10 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of 30 Day and 10 Year.

Diversification Opportunities for 30 Day and 10 Year

0.7

Correlation Coefficient

30 Day  10 Year

Poor diversification

The 3 months correlation between ZQUSD and ZNUSD is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding 30 Day Fed and 10 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 10 Year T and 30 Day 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 30 Day Fed are associated (or correlated) with 10 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 10 Year T has no effect on the direction of 30 Day i.e., 30 Day and 10 Year go up and down completely randomly.

Pair Corralation between 30 Day and 10 Year

Assuming the 90 days horizon 30 Day is expected to generate 65.8 times less return on investment than 10 Year. But when comparing it to its historical volatility, 30 Day Fed is 21.86 times less risky than 10 Year. It trades about 0.03 of its potential returns per unit of risk. 10 Year T Note Futures is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,897  in 10 Year T Note Futures on December 28, 2024 and sell it today you would earn a total of  228.00  from holding 10 Year T Note Futures or generate 2.09% return on investment over 90 days.

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

30 Day Fed  vs.  10 Year T Note Futures

30 Day Fed

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 30 Day Fed are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 30 Day is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

10 Year T

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in 10 Year T Note Futures are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 10 Year is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with 30 Day and 10 Year

The main advantage of trading using opposite 30 Day and 10 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 30 Day position performs unexpectedly, 10 Year 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 10 Year will offset losses from the drop in 10 Year's long position.

The idea behind 30 Day Fed and 10 Year T Note Futures 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.