Correlation Between Commonwealth Global and Inverse Dow
Can any of the company-specific risk be diversified away by investing in both Commonwealth Global and Inverse Dow 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 Inverse Dow 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 Inverse Dow 2x, you can compare the effects of market volatilities on Commonwealth Global and Inverse Dow 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 Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and Inverse Dow.
Diversification Opportunities for Commonwealth Global and Inverse Dow
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Commonwealth and Inverse is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x 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 Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Commonwealth Global i.e., Commonwealth Global and Inverse Dow go up and down completely randomly.
Pair Corralation between Commonwealth Global and Inverse Dow
Assuming the 90 days horizon Commonwealth Global Fund is expected to under-perform the Inverse Dow. But the mutual fund apears to be less risky and, when comparing its historical volatility, Commonwealth Global Fund is 183.44 times less risky than Inverse Dow. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Inverse Dow 2x is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 2,564 in Inverse Dow 2x on November 29, 2024 and sell it today you would earn a total of 11,046 from holding Inverse Dow 2x or generate 430.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Global Fund vs. Inverse Dow 2x
Performance |
| Timeline |
| Commonwealth Global |
| Inverse Dow 2x |
Commonwealth Global and Inverse Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Global and Inverse Dow
The main advantage of trading using opposite Commonwealth Global and Inverse Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Global position performs unexpectedly, Inverse Dow 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 Inverse Dow will offset losses from the drop in Inverse Dow's long position.The idea behind Commonwealth Global Fund and Inverse Dow 2x 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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