Correlation Between Us Equity and Global Alpha

Can any of the company-specific risk be diversified away by investing in both Us Equity 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 Us Equity 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 Us Equity 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 Us Equity with a short position of Global Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Equity and Global Alpha.

Diversification Opportunities for Us Equity and Global Alpha

0.76

Correlation Coefficient

Us Equity  Global Alpha

Poor diversification

The 3 months correlation between BGGSX and Global is 0.76. 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 Us Equity 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 Us Equity i.e., Us Equity and Global Alpha go up and down completely randomly.

Pair Corralation between Us Equity and Global Alpha

Assuming the 90 days horizon The Equity Growth is expected to under-perform the Global Alpha. In addition to that, Us Equity is 1.72 times more volatile than The Global Alpha. It trades about -0.03 of its total potential returns per unit of risk. The Global Alpha is currently generating about -0.01 per unit of volatility. If you would invest  1,618  in The Global Alpha on December 28, 2024 and sell it today you would lose (17.00) from holding The Global Alpha or give up 1.05% of portfolio value 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

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 basic indicators, Us Equity 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 Us Equity and Global Alpha

The main advantage of trading using opposite Us Equity and Global Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Equity 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.