Correlation Between Global Alpha and Us Equity

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

By analyzing existing cross correlation between The Global Alpha and The Equity Growth, you can compare the effects of market volatilities on Global Alpha and Us Equity 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 Alpha with a short position of Us Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Alpha and Us Equity.

Diversification Opportunities for Global Alpha and Us Equity

0.74

Correlation Coefficient

Global Alpha  Us Equity

Poor diversification

The 3 months correlation between Global and BGGKX is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Global Alpha and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Global Alpha 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 The Global Alpha are associated (or correlated) with Us Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Global Alpha i.e., Global Alpha and Us Equity go up and down completely randomly.

Pair Corralation between Global Alpha and Us Equity

Assuming the 90 days horizon The Global Alpha is expected to under-perform the Us Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, The Global Alpha is 1.22 times less risky than Us Equity. The mutual fund trades about -0.09 of its potential returns per unit of risk. The The Equity Growth is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,776  in The Equity Growth on December 26, 2024 and sell it today you would lose (155.00) from holding The Equity Growth or give up 5.58% of portfolio value over 90 days.

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

The Global Alpha  vs.  The Equity Growth

Global Alpha

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Global Alpha has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Equity Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Equity Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Us Equity 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 Alpha and Us Equity

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

The idea behind The Global Alpha and The Equity Growth 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.