Correlation Between Us Government and Rising Rates

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

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

Diversification Opportunities for Us Government and Rising Rates

-1.0

Correlation Coefficient

Us Government  Rising Rates

Pay attention - limited upside

The 3 months correlation between GVPIX and Rising is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Plus and Rising Rates Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rising Rates Opportunity and Us 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 Us Government Plus are associated (or correlated) with Rising Rates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rising Rates Opportunity has no effect on the direction of Us Government i.e., Us Government and Rising Rates go up and down completely randomly.

Pair Corralation between Us Government and Rising Rates

Assuming the 90 days horizon Us Government Plus is expected to under-perform the Rising Rates. But the mutual fund apears to be less risky and, when comparing its historical volatility, Us Government Plus is 1.0 times less risky than Rising Rates. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Rising Rates Opportunity is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,711  in Rising Rates Opportunity on September 16, 2024 and sell it today you would earn a total of  571.00  from holding Rising Rates Opportunity or generate 15.39% return on investment over 90 days.

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

Us Government Plus  vs.  Rising Rates Opportunity

Us Government Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Plus 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 forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Rising Rates Opportunity

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Rates Opportunity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Rising Rates showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Us Government and Rising Rates

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

The idea behind Us Government Plus and Rising Rates Opportunity 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.