Correlation Between Commonwealth Global and Eafe Fund
Can any of the company-specific risk be diversified away by investing in both Commonwealth Global and Eafe Fund 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 Commonwealth Global and Eafe Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Global Fund and The Eafe Fund, you can compare the effects of market volatilities on Commonwealth Global and Eafe Fund 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 Commonwealth Global with a short position of Eafe Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and Eafe Fund.
Diversification Opportunities for Commonwealth Global and Eafe Fund
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Commonwealth and Eafe is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Fund and Commonwealth Global 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 Commonwealth Global Fund are associated (or correlated) with Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of Commonwealth Global i.e., Commonwealth Global and Eafe Fund go up and down completely randomly.
Pair Corralation between Commonwealth Global and Eafe Fund
Assuming the 90 days horizon Commonwealth Global Fund is expected to generate 0.47 times more return on investment than Eafe Fund. However, Commonwealth Global Fund is 2.15 times less risky than Eafe Fund. It trades about -0.44 of its potential returns per unit of risk. The Eafe Fund is currently generating about -0.3 per unit of risk. If you would invest 2,196 in Commonwealth Global Fund on October 7, 2024 and sell it today you would lose (180.00) from holding Commonwealth Global Fund or give up 8.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Global Fund vs. The Eafe Fund
Performance |
| Timeline |
| Commonwealth Global |
| Eafe Fund |
Commonwealth Global and Eafe Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Global and Eafe Fund
The main advantage of trading using opposite Commonwealth Global and Eafe Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Global position performs unexpectedly, Eafe Fund 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 Eafe Fund will offset losses from the drop in Eafe Fund's long position.The idea behind Commonwealth Global Fund and The Eafe 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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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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