Correlation Between Short-term Government and Focused International

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

By analyzing existing cross correlation between Short Term Government Fund and Focused International Growth, you can compare the effects of market volatilities on Short-term Government and Focused International 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 Short-term Government with a short position of Focused International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Focused International.

Diversification Opportunities for Short-term Government and Focused International

0.65

Correlation Coefficient

Short-term Government  Focused International

Poor diversification

The 3 months correlation between Short-term and Focused is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Focused International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focused International and Short-term 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 Short Term Government Fund are associated (or correlated) with Focused International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focused International has no effect on the direction of Short-term Government i.e., Short-term Government and Focused International go up and down completely randomly.

Pair Corralation between Short-term Government and Focused International

Assuming the 90 days horizon Short Term Government Fund is expected to generate 0.13 times more return on investment than Focused International. However, Short Term Government Fund is 8.0 times less risky than Focused International. It trades about -0.05 of its potential returns per unit of risk. Focused International Growth is currently generating about -0.02 per unit of risk. If you would invest  913.00  in Short Term Government Fund on September 4, 2024 and sell it today you would lose (3.00) from holding Short Term Government Fund or give up 0.33% of portfolio value over 90 days.

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

Short Term Government Fund  vs.  Focused International Growth

Short Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Focused International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short-term Government and Focused International

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

The idea behind Short Term Government Fund and Focused International Growth 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.