Correlation Between Us Government and Government Bond

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

Diversification Opportunities for Us Government and Government Bond

0.99

Correlation Coefficient

Us Government  Government Bond

No risk reduction

The 3 months correlation between RGVCX and Government is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Government Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Bond 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 Government Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Bond has no effect on the direction of Us Government i.e., Us Government and Government Bond go up and down completely randomly.

Pair Corralation between Us Government and Government Bond

Assuming the 90 days horizon Us Government is expected to generate 1.02 times less return on investment than Government Bond. In addition to that, Us Government is 1.1 times more volatile than Government Bond Fund. It trades about 0.13 of its total potential returns per unit of risk. Government Bond Fund is currently generating about 0.15 per unit of volatility. If you would invest  914.00  in Government Bond Fund on May 27, 2025 and sell it today you would earn a total of  24.00  from holding Government Bond Fund or generate 2.63% return on investment over 90 days.

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

Us Government Securities  vs.  Government Bond Fund

Us Government Securities

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Us Government Securities are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Government Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Government Bond Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Government Bond 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 Government Bond

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

The idea behind Us Government Securities and Government Bond 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.