Correlation Between Government Securities and Income Fund

Can any of the company-specific risk be diversified away by investing in both Government Securities and Income 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 Government Securities and Income Fund 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 Income Fund Income, you can compare the effects of market volatilities on Government Securities and Income 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 Government Securities with a short position of Income Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Income Fund.

Diversification Opportunities for Government Securities and Income Fund

0.93

Correlation Coefficient

Government Securities  Income Fund

Almost no diversification

The 3 months correlation between Government and Income is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Income Fund Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund Income 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 Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund Income has no effect on the direction of Government Securities i.e., Government Securities and Income Fund go up and down completely randomly.

Pair Corralation between Government Securities and Income Fund

Assuming the 90 days horizon Government Securities is expected to generate 1.58 times less return on investment than Income Fund. But when comparing it to its historical volatility, Government Securities Fund is 1.02 times less risky than Income Fund. It trades about 0.03 of its potential returns per unit of risk. Income Fund Income is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,046  in Income Fund Income on September 26, 2024 and sell it today you would earn a total of  89.00  from holding Income Fund Income or generate 8.51% return on investment over 90 days.

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

Government Securities Fund  vs.  Income Fund Income

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.

Income Fund Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Income Fund Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Income Fund 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 Income Fund

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

The idea behind Government Securities Fund and Income Fund Income 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.