Correlation Between Global Opportunity and Global Advantage
Can any of the company-specific risk be diversified away by investing in both Global Opportunity and Global Advantage 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 Opportunity and Global Advantage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Opportunity Portfolio and Global Advantage Portfolio, you can compare the effects of market volatilities on Global Opportunity and Global Advantage 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 Opportunity with a short position of Global Advantage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Opportunity and Global Advantage.
Diversification Opportunities for Global Opportunity and Global Advantage
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Global and Global is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Global Opportunity Portfolio and Global Advantage Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Advantage Por and Global Opportunity 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 Opportunity Portfolio are associated (or correlated) with Global Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Advantage Por has no effect on the direction of Global Opportunity i.e., Global Opportunity and Global Advantage go up and down completely randomly.
Pair Corralation between Global Opportunity and Global Advantage
Assuming the 90 days horizon Global Opportunity is expected to generate 3.41 times less return on investment than Global Advantage. But when comparing it to its historical volatility, Global Opportunity Portfolio is 2.37 times less risky than Global Advantage. It trades about 0.27 of its potential returns per unit of risk. Global Advantage Portfolio is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 1,669 in Global Advantage Portfolio on September 13, 2024 and sell it today you would earn a total of 218.00 from holding Global Advantage Portfolio or generate 13.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Global Opportunity Portfolio vs. Global Advantage Portfolio
Performance |
| Timeline |
| Global Opportunity |
| Global Advantage Por |
Global Opportunity and Global Advantage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Opportunity and Global Advantage
The main advantage of trading using opposite Global Opportunity and Global Advantage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Opportunity position performs unexpectedly, Global Advantage 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 Global Advantage will offset losses from the drop in Global Advantage's long position.The idea behind Global Opportunity Portfolio and Global Advantage Portfolio 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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