Correlation Between Global X and Main Sector

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

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

Diversification Opportunities for Global X and Main Sector

0.06

Correlation Coefficient

Global X  Main Sector

Significant diversification

The 3 months correlation between Global and Main is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Global X Thematic and Main Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Sector Rotation and Global X 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 Global X Thematic are associated (or correlated) with Main Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Sector Rotation has no effect on the direction of Global X i.e., Global X and Main Sector go up and down completely randomly.

Pair Corralation between Global X and Main Sector

Given the investment horizon of 90 days Global X Thematic is expected to under-perform the Main Sector. In addition to that, Global X is 1.14 times more volatile than Main Sector Rotation. It trades about -0.24 of its total potential returns per unit of risk. Main Sector Rotation is currently generating about -0.14 per unit of volatility. If you would invest  5,762  in Main Sector Rotation on October 7, 2024 and sell it today you would lose (187.00) from holding Main Sector Rotation or give up 3.25% of portfolio value over 90 days.

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

Global X Thematic  vs.  Main Sector Rotation

Global X Thematic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X Thematic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Main Sector Rotation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Main Sector Rotation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Main Sector is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Global X and Main Sector

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

The idea behind Global X Thematic and Main Sector Rotation 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.