Correlation Between Eafe Fund and Global Alpha

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

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

Diversification Opportunities for Eafe Fund and Global Alpha

0.71

Correlation Coefficient

Eafe Fund  Global Alpha

Poor diversification

The 3 months correlation between Eafe and Global is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Fund and The Global Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Alpha and Eafe Fund 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 Eafe Fund are associated (or correlated) with Global Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Alpha has no effect on the direction of Eafe Fund i.e., Eafe Fund and Global Alpha go up and down completely randomly.

Pair Corralation between Eafe Fund and Global Alpha

Assuming the 90 days horizon The Eafe Fund is expected to generate 1.25 times more return on investment than Global Alpha. However, Eafe Fund is 1.25 times more volatile than The Global Alpha. It trades about 0.04 of its potential returns per unit of risk. The Global Alpha is currently generating about -0.01 per unit of risk. If you would invest  1,255  in The Eafe Fund on December 28, 2024 and sell it today you would earn a total of  34.00  from holding The Eafe Fund or generate 2.71% return on investment over 90 days.

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

The Eafe Fund  vs.  The Global Alpha

Eafe Fund

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Eafe Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong basic indicators, Global Alpha is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eafe Fund and Global Alpha

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

The idea behind The Eafe Fund and The Global Alpha 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.