Correlation Between Global Multi-strategy and Preferred Securities
Can any of the company-specific risk be diversified away by investing in both Global Multi-strategy and Preferred Securities 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 Multi-strategy and Preferred Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Multi Strategy Fund and Preferred Securities Fund, you can compare the effects of market volatilities on Global Multi-strategy and Preferred Securities 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 Multi-strategy with a short position of Preferred Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Multi-strategy and Preferred Securities.
Diversification Opportunities for Global Multi-strategy and Preferred Securities
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and Preferred is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Global Multi Strategy Fund and Preferred Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Securities and Global Multi-strategy 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 Multi Strategy Fund are associated (or correlated) with Preferred Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Securities has no effect on the direction of Global Multi-strategy i.e., Global Multi-strategy and Preferred Securities go up and down completely randomly.
Pair Corralation between Global Multi-strategy and Preferred Securities
Assuming the 90 days horizon Global Multi Strategy Fund is expected to generate 1.62 times more return on investment than Preferred Securities. However, Global Multi-strategy is 1.62 times more volatile than Preferred Securities Fund. It trades about 0.16 of its potential returns per unit of risk. Preferred Securities Fund is currently generating about -0.12 per unit of risk. If you would invest 1,123 in Global Multi Strategy Fund on August 28, 2024 and sell it today you would earn a total of 10.00 from holding Global Multi Strategy Fund or generate 0.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Global Multi Strategy Fund vs. Preferred Securities Fund
Performance |
| Timeline |
| Global Multi Strategy |
| Preferred Securities |
Global Multi-strategy and Preferred Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Multi-strategy and Preferred Securities
The main advantage of trading using opposite Global Multi-strategy and Preferred Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Multi-strategy position performs unexpectedly, Preferred Securities 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 Preferred Securities will offset losses from the drop in Preferred Securities' long position.The idea behind Global Multi Strategy Fund and Preferred Securities 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.
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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