Correlation Between Morningstar Global and Bright Rock

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

By analyzing existing cross correlation between Morningstar Global Income and Bright Rock Mid, you can compare the effects of market volatilities on Morningstar Global and Bright Rock 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 Morningstar Global with a short position of Bright Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Global and Bright Rock.

Diversification Opportunities for Morningstar Global and Bright Rock

0.11

Correlation Coefficient

Morningstar Global  Bright Rock

Average diversification

The 3 months correlation between Morningstar and Bright is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Global Income and Bright Rock Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Rock Mid and Morningstar Global 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 Morningstar Global Income are associated (or correlated) with Bright Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Rock Mid has no effect on the direction of Morningstar Global i.e., Morningstar Global and Bright Rock go up and down completely randomly.

Pair Corralation between Morningstar Global and Bright Rock

Assuming the 90 days horizon Morningstar Global Income is expected to under-perform the Bright Rock. But the mutual fund apears to be less risky and, when comparing its historical volatility, Morningstar Global Income is 2.47 times less risky than Bright Rock. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Bright Rock Mid is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,537  in Bright Rock Mid on September 13, 2024 and sell it today you would earn a total of  198.00  from holding Bright Rock Mid or generate 7.8% return on investment over 90 days.

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

Morningstar Global Income  vs.  Bright Rock Mid

Morningstar Global Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bright Rock Mid

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Rock Mid are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Bright Rock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morningstar Global and Bright Rock

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

The idea behind Morningstar Global Income and Bright Rock Mid 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 Global Correlations module to find global opportunities by holding instruments from different markets.