Correlation Between Global Core and Global Advantage

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

Diversification Opportunities for Global Core and Global Advantage

0.87

Correlation Coefficient

Global Core  Global Advantage

Very poor diversification

The 3 months correlation between Global and Global is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio and Global Advantage Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Advantage 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 Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Advantage Por has no effect on the direction of Global Core i.e., Global Core and Global Advantage go up and down completely randomly.

Pair Corralation between Global Core and Global Advantage

Assuming the 90 days horizon Global Core is expected to generate 3.71 times less return on investment than Global Advantage. But when comparing it to its historical volatility, Global E Portfolio is 2.08 times less risky than Global Advantage. It trades about 0.21 of its potential returns per unit of risk. Global Advantage Portfolio is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  1,042  in Global Advantage Portfolio on September 5, 2024 and sell it today you would earn a total of  441.00  from holding Global Advantage Portfolio or generate 42.32% return on investment over 90 days.

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

Global E Portfolio  vs.  Global Advantage Portfolio

Global E Portfolio

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Portfolio are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global Advantage Por

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Global Advantage Portfolio are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Advantage showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Core and Global Advantage

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

The idea behind Global E Portfolio and Global Advantage 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.