Correlation Between Intermediate Government and Federated Government
Can any of the company-specific risk be diversified away by investing in both Intermediate Government and Federated Government 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 Intermediate Government and Federated Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Government Bond and Federated Government Income, you can compare the effects of market volatilities on Intermediate Government and Federated Government 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 Intermediate Government with a short position of Federated Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Government and Federated Government.
Diversification Opportunities for Intermediate Government and Federated Government
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Intermediate and Federated is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Federated Government Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Government and Intermediate 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 Intermediate Government Bond are associated (or correlated) with Federated Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Government has no effect on the direction of Intermediate Government i.e., Intermediate Government and Federated Government go up and down completely randomly.
Pair Corralation between Intermediate Government and Federated Government
Assuming the 90 days horizon Intermediate Government is expected to generate 2.21 times less return on investment than Federated Government. But when comparing it to its historical volatility, Intermediate Government Bond is 2.11 times less risky than Federated Government. It trades about 0.16 of its potential returns per unit of risk. Federated Government Income is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 893.00 in Federated Government Income on August 27, 2025 and sell it today you would earn a total of 23.00 from holding Federated Government Income or generate 2.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Government Bond vs. Federated Government Income
Performance |
| Timeline |
| Intermediate Government |
| Federated Government |
Intermediate Government and Federated Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Government and Federated Government
The main advantage of trading using opposite Intermediate Government and Federated Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Government position performs unexpectedly, Federated Government 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 Federated Government will offset losses from the drop in Federated Government's long position.The idea behind Intermediate Government Bond and Federated Government 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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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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