Correlation Between New Perspective and Global Advantage

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

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

Diversification Opportunities for New Perspective and Global Advantage

0.03

Correlation Coefficient

New Perspective  Global Advantage

Significant diversification

The 3 months correlation between New and Global is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund and Global Advantage Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Advantage Por and New Perspective 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 New Perspective Fund are associated (or correlated) with Global Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Advantage Por has no effect on the direction of New Perspective i.e., New Perspective and Global Advantage go up and down completely randomly.

Pair Corralation between New Perspective and Global Advantage

Assuming the 90 days horizon New Perspective Fund is expected to under-perform the Global Advantage. But the mutual fund apears to be less risky and, when comparing its historical volatility, New Perspective Fund is 1.92 times less risky than Global Advantage. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Global Advantage Portfolio is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,172  in Global Advantage Portfolio on October 22, 2024 and sell it today you would earn a total of  304.00  from holding Global Advantage Portfolio or generate 25.94% return on investment over 90 days.

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

New Perspective Fund  vs.  Global Advantage Portfolio

New Perspective

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Advantage Por

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Advantage Portfolio are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Advantage showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Perspective and Global Advantage

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

The idea behind New Perspective Fund and Global Advantage Portfolio 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.