Correlation Between Performance Trust and Inverse Government

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

By analyzing existing cross correlation between Performance Trust Municipal and Inverse Government Long, you can compare the effects of market volatilities on Performance Trust and Inverse 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 Performance Trust with a short position of Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Performance Trust and Inverse Government.

Diversification Opportunities for Performance Trust and Inverse Government

-0.6

Correlation Coefficient

Performance Trust  Inverse Government

Excellent diversification

The 3 months correlation between Performance and Inverse is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Performance Trust Municipal and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long and Performance Trust 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 Performance Trust Municipal are associated (or correlated) with Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Performance Trust i.e., Performance Trust and Inverse Government go up and down completely randomly.

Pair Corralation between Performance Trust and Inverse Government

Assuming the 90 days horizon Performance Trust Municipal is expected to under-perform the Inverse Government. But the mutual fund apears to be less risky and, when comparing its historical volatility, Performance Trust Municipal is 1.78 times less risky than Inverse Government. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Inverse Government Long is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  18,366  in Inverse Government Long on February 9, 2025 and sell it today you would earn a total of  429.00  from holding Inverse Government Long or generate 2.34% return on investment over 90 days.

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

Performance Trust Municipal  vs.  Inverse Government Long

Performance Trust

Risk-Adjusted Performance

Very Weak

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

Inverse Government Long

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inverse Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Performance Trust and Inverse Government

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

The idea behind Performance Trust Municipal and Inverse Government Long 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.