Correlation Between Global Equity and Alternative Asset

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

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

Diversification Opportunities for Global Equity and Alternative Asset

0.5

Correlation Coefficient

Global Equity  Alternative Asset

Very weak diversification

The 3 months correlation between Global and Alternative is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Global Equity Fund and Alternative Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternative Asset and Global Equity 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 Equity Fund are associated (or correlated) with Alternative Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternative Asset has no effect on the direction of Global Equity i.e., Global Equity and Alternative Asset go up and down completely randomly.

Pair Corralation between Global Equity and Alternative Asset

Assuming the 90 days horizon Global Equity Fund is expected to under-perform the Alternative Asset. In addition to that, Global Equity is 5.66 times more volatile than Alternative Asset Allocation. It trades about -0.29 of its total potential returns per unit of risk. Alternative Asset Allocation is currently generating about -0.2 per unit of volatility. If you would invest  1,628  in Alternative Asset Allocation on October 11, 2024 and sell it today you would lose (29.00) from holding Alternative Asset Allocation or give up 1.78% of portfolio value over 90 days.

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

Global Equity Fund  vs.  Alternative Asset Allocation

Global Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Alternative Asset

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Global Equity and Alternative Asset

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

The idea behind Global Equity Fund and Alternative Asset Allocation 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 Transaction History module to view history of all your transactions and understand their impact on performance.