Correlation Between ALM ES and BGF Euro

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

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

Diversification Opportunities for ALM ES and BGF Euro

0.04

Correlation Coefficient

ALM ES  BGF Euro

Significant diversification

The 3 months correlation between ALM and BGF is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding ALM ES Actions 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 ALM ES 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 ALM ES Actions 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 ALM ES i.e., ALM ES and BGF Euro go up and down completely randomly.

Pair Corralation between ALM ES and BGF Euro

Assuming the 90 days trading horizon ALM ES Actions is expected to under-perform the BGF Euro. But the fund apears to be less risky and, when comparing its historical volatility, ALM ES Actions is 1.18 times less risky than BGF Euro. The fund trades about -0.13 of its potential returns per unit of risk. The BGF Euro Markets is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,445  in BGF Euro Markets on December 22, 2024 and sell it today you would earn a total of  424.00  from holding BGF Euro Markets or generate 9.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

ALM ES Actions  vs.  BGF Euro Markets

ALM ES Actions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALM ES Actions has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unsteady performance, the Fund's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the fund investors.

BGF Euro Markets

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BGF Euro Markets are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather unsteady technical and fundamental indicators, BGF Euro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ALM ES and BGF Euro

The main advantage of trading using opposite ALM ES and BGF Euro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALM ES 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 ALM ES Actions 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.