Correlation Between International Government and Government Securities

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

By analyzing existing cross correlation between International Government Bond and Government Securities Fund, you can compare the effects of market volatilities on International Government and Government Securities 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 International Government with a short position of Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Government and Government Securities.

Diversification Opportunities for International Government and Government Securities

0.89

Correlation Coefficient

International Government  Government Securities

Very poor diversification

The 3 months correlation between International and Government is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding International Government Bond and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities and International 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 International Government Bond are associated (or correlated) with Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of International Government i.e., International Government and Government Securities go up and down completely randomly.

Pair Corralation between International Government and Government Securities

Assuming the 90 days horizon International Government Bond is expected to generate 1.16 times more return on investment than Government Securities. However, International Government is 1.16 times more volatile than Government Securities Fund. It trades about 0.07 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.03 per unit of risk. If you would invest  1,034  in International Government Bond on May 1, 2025 and sell it today you would earn a total of  15.00  from holding International Government Bond or generate 1.45% return on investment over 90 days.

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

International Government Bond  vs.  Government Securities Fund

International Government

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Government Bond are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, International Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Government Securities

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Government Securities Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Government Securities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Government and Government Securities

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

The idea behind International Government Bond and Government Securities 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.