Correlation Between Stock Index and Global Strategy
Can any of the company-specific risk be diversified away by investing in both Stock Index and Global Strategy 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 Stock Index and Global Strategy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stock Index Fund and Global Strategy Fund, you can compare the effects of market volatilities on Stock Index and Global Strategy 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 Stock Index with a short position of Global Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Index and Global Strategy.
Diversification Opportunities for Stock Index and Global Strategy
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Stock and Global is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index Fund and Global Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Strategy and Stock Index 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 Stock Index Fund are associated (or correlated) with Global Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Strategy has no effect on the direction of Stock Index i.e., Stock Index and Global Strategy go up and down completely randomly.
Pair Corralation between Stock Index and Global Strategy
Assuming the 90 days horizon Stock Index Fund is expected to generate 1.7 times more return on investment than Global Strategy. However, Stock Index is 1.7 times more volatile than Global Strategy Fund. It trades about 0.2 of its potential returns per unit of risk. Global Strategy Fund is currently generating about 0.13 per unit of risk. If you would invest 5,575 in Stock Index Fund on September 2, 2024 and sell it today you would earn a total of 523.00 from holding Stock Index Fund or generate 9.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stock Index Fund vs. Global Strategy Fund
Performance |
| Timeline |
| Stock Index Fund |
| Global Strategy |
Stock Index and Global Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stock Index and Global Strategy
The main advantage of trading using opposite Stock Index and Global Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stock Index position performs unexpectedly, Global Strategy 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 Strategy will offset losses from the drop in Global Strategy's long position.| Stock Index vs. Goehring Rozencwajg Resources | Stock Index vs. Tortoise Energy Independence | Stock Index vs. Firsthand Alternative Energy | Stock Index vs. Fidelity Advisor Energy |
| Global Strategy vs. Mid Cap Index | Global Strategy vs. Mid Cap Strategic | Global Strategy vs. Valic Company I | Global Strategy vs. Valic Company I |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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