Correlation Between Great-west and Great-west Bond

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

By analyzing existing cross correlation between Great West Government Mortgage and Great West Bond Index, you can compare the effects of market volatilities on Great-west and Great-west Bond 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 Great-west with a short position of Great-west Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great-west and Great-west Bond.

Diversification Opportunities for Great-west and Great-west Bond

1.0

Correlation Coefficient

Great-west  Great-west Bond

No risk reduction

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

Pair Corralation between Great-west and Great-west Bond

Assuming the 90 days horizon Great West Government Mortgage is expected to under-perform the Great-west Bond. In addition to that, Great-west is 1.1 times more volatile than Great West Bond Index. It trades about -0.06 of its total potential returns per unit of risk. Great West Bond Index is currently generating about -0.06 per unit of volatility. If you would invest  1,323  in Great West Bond Index on September 4, 2024 and sell it today you would lose (15.00) from holding Great West Bond Index or give up 1.13% of portfolio value over 90 days.

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

Great West Government Mortgage  vs.  Great West Bond Index

Great West Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Great West Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Great-west and Great-west Bond

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

The idea behind Great West Government Mortgage and Great West Bond Index 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.