Correlation Between Global Core and Global Opportunity
Can any of the company-specific risk be diversified away by investing in both Global Core and Global Opportunity 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 Core and Global Opportunity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global E Portfolio and Global Opportunity Portfolio, you can compare the effects of market volatilities on Global Core and Global Opportunity 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 Core with a short position of Global Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Core and Global Opportunity.
Diversification Opportunities for Global Core and Global Opportunity
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and Global is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio and Global Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Opportunity and Global Core 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 E Portfolio are associated (or correlated) with Global Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Opportunity has no effect on the direction of Global Core i.e., Global Core and Global Opportunity go up and down completely randomly.
Pair Corralation between Global Core and Global Opportunity
Assuming the 90 days horizon Global E Portfolio is expected to generate 0.78 times more return on investment than Global Opportunity. However, Global E Portfolio is 1.29 times less risky than Global Opportunity. It trades about -0.04 of its potential returns per unit of risk. Global Opportunity Portfolio is currently generating about -0.05 per unit of risk. If you would invest 2,186 in Global E Portfolio on December 1, 2024 and sell it today you would lose (18.00) from holding Global E Portfolio or give up 0.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global E Portfolio vs. Global Opportunity Portfolio
Performance |
| Timeline |
| Global E Portfolio |
| Global Opportunity |
Global Core and Global Opportunity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Core and Global Opportunity
The main advantage of trading using opposite Global Core and Global Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Core position performs unexpectedly, Global Opportunity 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 Opportunity will offset losses from the drop in Global Opportunity's long position.| Global Core vs. Mesirow Financial High | Global Core vs. Ab High Income | Global Core vs. Virtus High Yield | Global Core vs. Metropolitan West High |
| Global Opportunity vs. Morgan Stanley Multi | Global Opportunity vs. Growth Portfolio Class | Global Opportunity vs. Morgan Stanley Insti | Global Opportunity vs. Virtus Kar Small Cap |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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