Correlation Between Government Securities and Unconstrained Emerging

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

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

Diversification Opportunities for Government Securities and Unconstrained Emerging

0.54

Correlation Coefficient

Government Securities  Unconstrained Emerging

Very weak diversification

The 3 months correlation between Government and Unconstrained is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Unconstrained Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unconstrained Emerging and Government Securities 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 Government Securities Fund are associated (or correlated) with Unconstrained Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unconstrained Emerging has no effect on the direction of Government Securities i.e., Government Securities and Unconstrained Emerging go up and down completely randomly.

Pair Corralation between Government Securities and Unconstrained Emerging

Assuming the 90 days horizon Government Securities Fund is expected to under-perform the Unconstrained Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, Government Securities Fund is 1.42 times less risky than Unconstrained Emerging. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Unconstrained Emerging Markets is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  537.00  in Unconstrained Emerging Markets on September 5, 2024 and sell it today you would lose (5.00) from holding Unconstrained Emerging Markets or give up 0.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Government Securities Fund  vs.  Unconstrained Emerging Markets

Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Unconstrained Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Government Securities and Unconstrained Emerging

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

The idea behind Government Securities Fund and Unconstrained Emerging Markets 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.