Correlation Between Global Equity and Global Absolute

Can any of the company-specific risk be diversified away by investing in both Global Equity and Global Absolute 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 Global Absolute 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 Global Absolute Return, you can compare the effects of market volatilities on Global Equity and Global Absolute 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 Global Absolute. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Equity and Global Absolute.

Diversification Opportunities for Global Equity and Global Absolute

0.82

Correlation Coefficient

Global Equity  Global Absolute

Very poor diversification

The 3 months correlation between Global and Global is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Global Equity Fund and Global Absolute Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Absolute Return 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 Global Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Absolute Return has no effect on the direction of Global Equity i.e., Global Equity and Global Absolute go up and down completely randomly.

Pair Corralation between Global Equity and Global Absolute

Assuming the 90 days horizon Global Equity Fund is expected to under-perform the Global Absolute. In addition to that, Global Equity is 2.51 times more volatile than Global Absolute Return. It trades about 0.0 of its total potential returns per unit of risk. Global Absolute Return is currently generating about 0.02 per unit of volatility. If you would invest  1,013  in Global Absolute Return on October 7, 2024 and sell it today you would earn a total of  18.00  from holding Global Absolute Return or generate 1.78% return on investment over 90 days.

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

Global Equity Fund  vs.  Global Absolute Return

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.

Global Absolute Return

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Absolute Return has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Global Absolute 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 Global Absolute

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

The idea behind Global Equity Fund and Global Absolute Return 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.