Correlation Between Impact ISR and BGF Euro

Can any of the company-specific risk be diversified away by investing in both Impact ISR and BGF Euro 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 Impact ISR and BGF Euro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Impact ISR Performance and BGF Euro Markets, you can compare the effects of market volatilities on Impact ISR and BGF Euro 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 Impact ISR with a short position of BGF Euro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Impact ISR and BGF Euro.

Diversification Opportunities for Impact ISR and BGF Euro

0.58

Correlation Coefficient

Impact ISR  BGF Euro

Very weak diversification

The 3 months correlation between Impact and BGF is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Impact ISR Performance and BGF Euro Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF Euro Markets and Impact ISR 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 Impact ISR Performance are associated (or correlated) with BGF Euro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF Euro Markets has no effect on the direction of Impact ISR i.e., Impact ISR and BGF Euro go up and down completely randomly.

Pair Corralation between Impact ISR and BGF Euro

Assuming the 90 days trading horizon Impact ISR Performance is expected to under-perform the BGF Euro. But the fund apears to be less risky and, when comparing its historical volatility, Impact ISR Performance is 1.52 times less risky than BGF Euro. The fund trades about -0.02 of its potential returns per unit of risk. The BGF Euro Markets is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,371  in BGF Euro Markets on September 23, 2024 and sell it today you would earn a total of  57.00  from holding BGF Euro Markets or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Impact ISR Performance  vs.  BGF Euro Markets

Impact ISR Performance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Impact ISR Performance has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly stable basic indicators, Impact ISR is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

BGF Euro Markets

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BGF Euro Markets are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather sound technical and fundamental indicators, BGF Euro is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Impact ISR and BGF Euro

The main advantage of trading using opposite Impact ISR and BGF Euro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Impact ISR position performs unexpectedly, BGF Euro 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 BGF Euro will offset losses from the drop in BGF Euro's long position.

The idea behind Impact ISR Performance and BGF Euro Markets 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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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.