Correlation Between Global Gold and Kensington Active

Can any of the company-specific risk be diversified away by investing in both Global Gold and Kensington Active 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 Gold and Kensington Active into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Global Gold Fund and Kensington Active Advantage, you can compare the effects of market volatilities on Global Gold and Kensington Active 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 Gold with a short position of Kensington Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Gold and Kensington Active.

Diversification Opportunities for Global Gold and Kensington Active

-0.32

Correlation Coefficient

Global Gold  Kensington Active

Very good diversification

The 3 months correlation between Global and Kensington is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Global Gold Fund and Kensington Active Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Active and Global Gold 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 Gold Fund are associated (or correlated) with Kensington Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Active has no effect on the direction of Global Gold i.e., Global Gold and Kensington Active go up and down completely randomly.

Pair Corralation between Global Gold and Kensington Active

Assuming the 90 days horizon Global Gold Fund is expected to generate 2.63 times more return on investment than Kensington Active. However, Global Gold is 2.63 times more volatile than Kensington Active Advantage. It trades about 0.28 of its potential returns per unit of risk. Kensington Active Advantage is currently generating about -0.09 per unit of risk. If you would invest  1,186  in Global Gold Fund on December 23, 2024 and sell it today you would earn a total of  359.00  from holding Global Gold Fund or generate 30.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Global Gold Fund  vs.  Kensington Active Advantage

Global Gold Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Gold Fund are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Kensington Active

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kensington Active Advantage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Kensington Active is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Gold and Kensington Active

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

The idea behind Global Gold Fund and Kensington Active Advantage 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.