Correlation Between Intermediate Government and Banking Fund

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

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

Diversification Opportunities for Intermediate Government and Banking Fund

0.08

Correlation Coefficient

Intermediate Government  Banking Fund

Significant diversification

The 3 months correlation between Intermediate and Banking is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Intermediate Government 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 Intermediate Government Bond are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Intermediate Government i.e., Intermediate Government and Banking Fund go up and down completely randomly.

Pair Corralation between Intermediate Government and Banking Fund

Assuming the 90 days horizon Intermediate Government Bond is expected to generate 0.05 times more return on investment than Banking Fund. However, Intermediate Government Bond is 20.76 times less risky than Banking Fund. It trades about -0.22 of its potential returns per unit of risk. Banking Fund Class is currently generating about -0.39 per unit of risk. If you would invest  947.00  in Intermediate Government Bond on September 25, 2024 and sell it today you would lose (3.00) from holding Intermediate Government Bond or give up 0.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Intermediate Government Bond  vs.  Banking Fund Class

Intermediate Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Government Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Intermediate Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Banking Fund Class

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Intermediate Government and Banking Fund

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

The idea behind Intermediate Government Bond and Banking Fund Class 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.