Correlation Between Equity Growth and Global Alpha

Can any of the company-specific risk be diversified away by investing in both Equity Growth 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 Equity Growth 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 Equity Growth and The Global Alpha, you can compare the effects of market volatilities on Equity Growth 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 Equity Growth with a short position of Global Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Global Alpha.

Diversification Opportunities for Equity Growth and Global Alpha

0.72

Correlation Coefficient

Equity Growth  Global Alpha

Poor diversification

The 3 months correlation between Equity and Global is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding The Equity Growth and The Global Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Alpha and Equity Growth 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 Equity Growth 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 Equity Growth i.e., Equity Growth and Global Alpha go up and down completely randomly.

Pair Corralation between Equity Growth and Global Alpha

Assuming the 90 days horizon The Equity Growth is expected to generate 1.91 times more return on investment than Global Alpha. However, Equity Growth is 1.91 times more volatile than The Global Alpha. It trades about 0.21 of its potential returns per unit of risk. The Global Alpha is currently generating about 0.13 per unit of risk. If you would invest  2,266  in The Equity Growth on September 11, 2024 and sell it today you would earn a total of  607.00  from holding The Equity Growth or generate 26.79% return on investment over 90 days.

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

The Equity Growth  vs.  The Global Alpha

Equity Growth

Risk-Adjusted Performance

16 of 100

Solid

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

Global Alpha

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Global Alpha are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Global Alpha may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Equity Growth and Global Alpha

The main advantage of trading using opposite Equity Growth and Global Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth 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 Equity Growth 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.