Correlation Between Multi Index and Global Equity

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

By analyzing existing cross correlation between Multi Index 2030 Lifetime and Global Equity Fund, you can compare the effects of market volatilities on Multi Index and Global Equity 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 Multi Index with a short position of Global Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multi Index and Global Equity.

Diversification Opportunities for Multi Index and Global Equity

0.8

Correlation Coefficient

Multi Index  Global Equity

Very poor diversification

The 3 months correlation between Multi and Global is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Multi Index 2030 Lifetime and Global Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Equity and Multi Index 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 Multi Index 2030 Lifetime are associated (or correlated) with Global Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Equity has no effect on the direction of Multi Index i.e., Multi Index and Global Equity go up and down completely randomly.

Pair Corralation between Multi Index and Global Equity

Assuming the 90 days horizon Multi Index is expected to generate 1.37 times less return on investment than Global Equity. But when comparing it to its historical volatility, Multi Index 2030 Lifetime is 1.15 times less risky than Global Equity. It trades about 0.08 of its potential returns per unit of risk. Global Equity Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,005  in Global Equity Fund on September 20, 2024 and sell it today you would earn a total of  350.00  from holding Global Equity Fund or generate 34.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Multi Index 2030 Lifetime  vs.  Global Equity Fund

Multi Index 2030

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multi Index 2030 Lifetime has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Multi Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong technical and fundamental indicators, Global Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multi Index and Global Equity

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

The idea behind Multi Index 2030 Lifetime and Global Equity Fund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.