Correlation Between Global Growth and Financial Industries
Can any of the company-specific risk be diversified away by investing in both Global Growth and Financial Industries 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 Global Growth and Financial Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Growth Fund and Financial Industries Fund, you can compare the effects of market volatilities on Global Growth and Financial Industries 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 Global Growth with a short position of Financial Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Growth and Financial Industries.
Diversification Opportunities for Global Growth and Financial Industries
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Global and Financial is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Global Growth Fund and Financial Industries Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Industries and Global Growth 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 Global Growth Fund are associated (or correlated) with Financial Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Industries has no effect on the direction of Global Growth i.e., Global Growth and Financial Industries go up and down completely randomly.
Pair Corralation between Global Growth and Financial Industries
Assuming the 90 days horizon Global Growth is expected to generate 1.83 times less return on investment than Financial Industries. But when comparing it to its historical volatility, Global Growth Fund is 1.11 times less risky than Financial Industries. It trades about 0.03 of its potential returns per unit of risk. Financial Industries Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,529 in Financial Industries Fund on October 25, 2024 and sell it today you would earn a total of 365.00 from holding Financial Industries Fund or generate 23.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Growth Fund vs. Financial Industries Fund
Performance |
| Timeline |
| Global Growth |
| Financial Industries |
Global Growth and Financial Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Growth and Financial Industries
The main advantage of trading using opposite Global Growth and Financial Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Growth position performs unexpectedly, Financial Industries 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 Financial Industries will offset losses from the drop in Financial Industries' long position.| Global Growth vs. Small Cap Growth | Global Growth vs. Upright Growth Income | Global Growth vs. Qs Defensive Growth | Global Growth vs. T Rowe Price |
| Financial Industries vs. Amg Managers Centersquare | Financial Industries vs. Tiaa Cref Real Estate | Financial Industries vs. Commonwealth Real Estate | Financial Industries vs. Vanguard Reit Index |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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