Correlation Between European Residential and Global X

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

By analyzing existing cross correlation between European Residential Real and Global X Lithium, you can compare the effects of market volatilities on European Residential and Global X 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 European Residential with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and Global X.

Diversification Opportunities for European Residential and Global X

0.54

Correlation Coefficient

European Residential  Global X

Very weak diversification

The 3 months correlation between European and Global is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Global X Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Lithium and European Residential 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 European Residential Real are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Lithium has no effect on the direction of European Residential i.e., European Residential and Global X go up and down completely randomly.

Pair Corralation between European Residential and Global X

Assuming the 90 days trading horizon European Residential Real is expected to generate 0.97 times more return on investment than Global X. However, European Residential Real is 1.03 times less risky than Global X. It trades about 0.24 of its potential returns per unit of risk. Global X Lithium is currently generating about 0.11 per unit of risk. If you would invest  268.00  in European Residential Real on September 3, 2024 and sell it today you would earn a total of  112.00  from holding European Residential Real or generate 41.79% return on investment over 90 days.

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

European Residential Real  vs.  Global X Lithium

European Residential Real

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Global X Lithium

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Lithium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Global X displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Residential and Global X

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

The idea behind European Residential Real and Global X Lithium 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.