Correlation Between Global Gold and Foreign Bond
Can any of the company-specific risk be diversified away by investing in both Global Gold and Foreign 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 Global Gold and Foreign Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Gold Fund and Foreign Bond Fund, you can compare the effects of market volatilities on Global Gold and Foreign 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 Global Gold with a short position of Foreign Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Gold and Foreign Bond.
Diversification Opportunities for Global Gold and Foreign Bond
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Global and Foreign is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Global Gold Fund and Foreign Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Bond and Global Gold 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 Gold Fund are associated (or correlated) with Foreign Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Bond has no effect on the direction of Global Gold i.e., Global Gold and Foreign Bond go up and down completely randomly.
Pair Corralation between Global Gold and Foreign Bond
Assuming the 90 days horizon Global Gold Fund is expected to generate 4.57 times more return on investment than Foreign Bond. However, Global Gold is 4.57 times more volatile than Foreign Bond Fund. It trades about 0.25 of its potential returns per unit of risk. Foreign Bond Fund is currently generating about 0.15 per unit of risk. If you would invest 1,221 in Global Gold Fund on September 14, 2024 and sell it today you would earn a total of 112.00 from holding Global Gold Fund or generate 9.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Gold Fund vs. Foreign Bond Fund
Performance |
| Timeline |
| Global Gold Fund |
| Foreign Bond |
Global Gold and Foreign Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Gold and Foreign Bond
The main advantage of trading using opposite Global Gold and Foreign Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Gold position performs unexpectedly, Foreign 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 Foreign Bond will offset losses from the drop in Foreign Bond's long position.| Global Gold vs. Dana Large Cap | Global Gold vs. Virtus Nfj Large Cap | Global Gold vs. Pace Large Value | Global Gold vs. Qs Large Cap |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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