Correlation Between World Core and World Ex

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

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

Diversification Opportunities for World Core and World Ex

0.31

Correlation Coefficient

World Core  World Ex

Weak diversification

The 3 months correlation between World and World is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding World Core Equity and World Ex Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Ex Core and World Core 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 World Core Equity are associated (or correlated) with World Ex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Ex Core has no effect on the direction of World Core i.e., World Core and World Ex go up and down completely randomly.

Pair Corralation between World Core and World Ex

Assuming the 90 days horizon World Core Equity is expected to under-perform the World Ex. In addition to that, World Core is 1.55 times more volatile than World Ex Core. It trades about -0.25 of its total potential returns per unit of risk. World Ex Core is currently generating about -0.27 per unit of volatility. If you would invest  1,346  in World Ex Core on October 11, 2024 and sell it today you would lose (41.00) from holding World Ex Core or give up 3.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

World Core Equity  vs.  World Ex Core

World Core Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

World Ex Core

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with World Core and World Ex

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

The idea behind World Core Equity and World Ex Core 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.