Correlation Between Global Core and Global Concentrated

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

By analyzing existing cross correlation between Global E Portfolio and Global Centrated Portfolio, you can compare the effects of market volatilities on Global Core and Global Concentrated 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 Core with a short position of Global Concentrated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Core and Global Concentrated.

Diversification Opportunities for Global Core and Global Concentrated

0.97

Correlation Coefficient

Global Core  Global Concentrated

Almost no diversification

The 3 months correlation between Global and Global is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio and Global Centrated Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Centrated Por and Global Core 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 E Portfolio are associated (or correlated) with Global Concentrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Centrated Por has no effect on the direction of Global Core i.e., Global Core and Global Concentrated go up and down completely randomly.

Pair Corralation between Global Core and Global Concentrated

Assuming the 90 days horizon Global E Portfolio is expected to under-perform the Global Concentrated. But the mutual fund apears to be less risky and, when comparing its historical volatility, Global E Portfolio is 1.11 times less risky than Global Concentrated. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Global Centrated Portfolio is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,359  in Global Centrated Portfolio on December 29, 2024 and sell it today you would lose (50.00) from holding Global Centrated Portfolio or give up 2.12% of portfolio value over 90 days.

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

Global E Portfolio  vs.  Global Centrated Portfolio

Global E Portfolio

Risk-Adjusted Performance

Very Weak

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

Global Centrated Por

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Centrated Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Concentrated 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 Core and Global Concentrated

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

The idea behind Global E Portfolio and Global Centrated Portfolio 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.