Correlation Between BGF Latin and BGF World

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

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

Diversification Opportunities for BGF Latin and BGF World

0.59

Correlation Coefficient

BGF Latin  BGF World

Very weak diversification

The 3 months correlation between BGF and BGF is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BGF Latin American and BGF World Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF World Gold and BGF Latin 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 BGF Latin American are associated (or correlated) with BGF World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF World Gold has no effect on the direction of BGF Latin i.e., BGF Latin and BGF World go up and down completely randomly.

Pair Corralation between BGF Latin and BGF World

Assuming the 90 days trading horizon BGF Latin American is expected to under-perform the BGF World. But the fund apears to be less risky and, when comparing its historical volatility, BGF Latin American is 1.25 times less risky than BGF World. The fund trades about -0.09 of its potential returns per unit of risk. The BGF World Gold is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,711  in BGF World Gold on October 8, 2024 and sell it today you would earn a total of  1,199  from holding BGF World Gold or generate 44.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.11%
Values	Daily Returns

BGF Latin American  vs.  BGF World Gold

BGF Latin American

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BGF Latin American has generated negative risk-adjusted returns adding no value to fund investors. In spite of unsteady performance in the last few months, the Fund's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

BGF World Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BGF World Gold has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound technical and fundamental indicators, BGF World is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BGF Latin and BGF World

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

The idea behind BGF Latin American and BGF World Gold 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..