Correlation Between Us Government and Equity Income

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

By analyzing existing cross correlation between Us Government Securities and Equity Income Fund, you can compare the effects of market volatilities on Us Government and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Equity Income.

Diversification Opportunities for Us Government and Equity Income

-0.73

Correlation Coefficient

Us Government  Equity Income

Pay attention - limited upside

The 3 months correlation between RGVAX and EQUITY is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Securities are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Us Government i.e., Us Government and Equity Income go up and down completely randomly.

Pair Corralation between Us Government and Equity Income

Assuming the 90 days horizon Us Government is expected to generate 12.16 times less return on investment than Equity Income. But when comparing it to its historical volatility, Us Government Securities is 1.77 times less risky than Equity Income. It trades about 0.01 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,529  in Equity Income Fund on August 30, 2024 and sell it today you would earn a total of  1,033  from holding Equity Income Fund or generate 29.27% return on investment over 90 days.

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

Us Government Securities  vs.  Equity Income Fund

Us Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Equity Income

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, Equity Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Equity Income

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

The idea behind Us Government Securities and Equity Income Fund 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.