Correlation Between Morningstar Global and Capital Growth

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

Diversification Opportunities for Morningstar Global and Capital Growth

0.25

Correlation Coefficient

Morningstar Global  Capital Growth

Modest diversification

The 3 months correlation between Morningstar and Capital is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Global Income and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Growth 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 Capital Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of Morningstar Global i.e., Morningstar Global and Capital Growth go up and down completely randomly.

Pair Corralation between Morningstar Global and Capital Growth

Assuming the 90 days horizon Morningstar Global Income is expected to generate 0.44 times more return on investment than Capital Growth. However, Morningstar Global Income is 2.26 times less risky than Capital Growth. It trades about 0.22 of its potential returns per unit of risk. Capital Growth Fund is currently generating about -0.02 per unit of risk. If you would invest  918.00  in Morningstar Global Income on December 30, 2024 and sell it today you would earn a total of  47.00  from holding Morningstar Global Income or generate 5.12% return on investment over 90 days.

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

Morningstar Global Income  vs.  Capital Growth Fund

Morningstar Global Income

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Global Income are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. 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.

Capital Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Morningstar Global and Capital Growth

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

The idea behind Morningstar Global Income and Capital Growth 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 Transaction History module to view history of all your transactions and understand their impact on performance.