Correlation Between Communication Services and Global X
Can any of the company-specific risk be diversified away by investing in both Communication Services and Global X 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 Communication Services and Global X into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Communication Services Select and Global X Thematic, you can compare the effects of market volatilities on Communication Services and Global X 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 Communication Services with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Communication Services and Global X.
Diversification Opportunities for Communication Services and Global X
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Communication and Global is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Communication Services Select and Global X Thematic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Thematic and Communication Services 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 Communication Services Select are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Thematic has no effect on the direction of Communication Services i.e., Communication Services and Global X go up and down completely randomly.
Pair Corralation between Communication Services and Global X
Considering the 90-day investment horizon Communication Services Select is expected to generate 0.71 times more return on investment than Global X. However, Communication Services Select is 1.4 times less risky than Global X. It trades about 0.29 of its potential returns per unit of risk. Global X Thematic is currently generating about 0.02 per unit of risk. If you would invest 9,085 in Communication Services Select on September 13, 2024 and sell it today you would earn a total of 948.00 from holding Communication Services Select or generate 10.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.67% |
| Values | Daily Returns |
Communication Services Select vs. Global X Thematic
Performance |
| Timeline |
| Communication Services |
| Global X Thematic |
Communication Services and Global X Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Communication Services and Global X
The main advantage of trading using opposite Communication Services and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Communication Services position performs unexpectedly, Global X 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 X will offset losses from the drop in Global X's long position.The idea behind Communication Services Select and Global X Thematic 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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