Correlation Between Short-term Government and Intermediate Government
Can any of the company-specific risk be diversified away by investing in both Short-term Government and Intermediate 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 Short-term Government and Intermediate Government 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 Intermediate Government Bond, you can compare the effects of market volatilities on Short-term Government and Intermediate 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 Short-term Government with a short position of Intermediate Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Intermediate Government.
Diversification Opportunities for Short-term Government and Intermediate Government
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Short-term and Intermediate is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Intermediate Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Government 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 Intermediate Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Government has no effect on the direction of Short-term Government i.e., Short-term Government and Intermediate Government go up and down completely randomly.
Pair Corralation between Short-term Government and Intermediate Government
Assuming the 90 days horizon Short-term Government is expected to generate 1.16 times less return on investment than Intermediate Government. But when comparing it to its historical volatility, Short Term Government Fund is 1.25 times less risky than Intermediate Government. It trades about 0.22 of its potential returns per unit of risk. Intermediate Government Bond is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 944.00 in Intermediate Government Bond on June 10, 2025 and sell it today you would earn a total of 16.00 from holding Intermediate Government Bond or generate 1.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. Intermediate Government Bond
Performance |
| Timeline |
| Short Term Government |
| Intermediate Government |
Short-term Government and Intermediate Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Intermediate Government
The main advantage of trading using opposite Short-term Government and Intermediate Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government position performs unexpectedly, Intermediate 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 Intermediate Government will offset losses from the drop in Intermediate Government's long position.The idea behind Short Term Government Fund and Intermediate Government Bond 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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