Correlation Between Global E and Inflation Linked

Can any of the company-specific risk be diversified away by investing in both Global E and Inflation Linked 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 E and Inflation Linked 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 Inflation Linked Fixed Income, you can compare the effects of market volatilities on Global E and Inflation Linked 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 E with a short position of Inflation Linked. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global E and Inflation Linked.

Diversification Opportunities for Global E and Inflation Linked

-0.66

Correlation Coefficient

Global E  Inflation Linked

Excellent diversification

The 3 months correlation between Global and Inflation is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio and Inflation Linked Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Linked Fixed and Global E 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 Inflation Linked. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Linked Fixed has no effect on the direction of Global E i.e., Global E and Inflation Linked go up and down completely randomly.

Pair Corralation between Global E and Inflation Linked

Assuming the 90 days horizon Global E Portfolio is expected to generate 2.55 times more return on investment than Inflation Linked. However, Global E is 2.55 times more volatile than Inflation Linked Fixed Income. It trades about 0.18 of its potential returns per unit of risk. Inflation Linked Fixed Income is currently generating about -0.13 per unit of risk. If you would invest  2,005  in Global E Portfolio on September 14, 2024 and sell it today you would earn a total of  158.00  from holding Global E Portfolio or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Global E Portfolio  vs.  Inflation Linked Fixed Income

Global E Portfolio

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Portfolio are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global E may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Inflation Linked Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inflation Linked Fixed Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inflation Linked 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 E and Inflation Linked

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

The idea behind Global E Portfolio and Inflation Linked Fixed Income 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.