Correlation Between Energy Leaders and Global X

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

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

Diversification Opportunities for Energy Leaders and Global X

-0.31

Correlation Coefficient

Energy Leaders  Global X

Very good diversification

The 3 months correlation between Energy and Global is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Energy Leaders Plus and Global X Pipelines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Pipelines and Energy Leaders 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 Energy Leaders Plus 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 Pipelines has no effect on the direction of Energy Leaders i.e., Energy Leaders and Global X go up and down completely randomly.

Pair Corralation between Energy Leaders and Global X

Assuming the 90 days trading horizon Energy Leaders Plus is expected to generate 0.87 times more return on investment than Global X. However, Energy Leaders Plus is 1.16 times less risky than Global X. It trades about 0.02 of its potential returns per unit of risk. Global X Pipelines is currently generating about -0.01 per unit of risk. If you would invest  315.00  in Energy Leaders Plus on October 11, 2024 and sell it today you would earn a total of  1.00  from holding Energy Leaders Plus or generate 0.32% return on investment over 90 days.

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

Energy Leaders Plus  vs.  Global X Pipelines

Energy Leaders Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Leaders Plus has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Energy Leaders is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X Pipelines

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Pipelines are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Energy Leaders and Global X

The main advantage of trading using opposite Energy Leaders and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Leaders 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 Energy Leaders Plus and Global X Pipelines 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.