Correlation Between Global Diversified and Global Alpha

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

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

Diversification Opportunities for Global Diversified and Global Alpha

0.65

Correlation Coefficient

Global Diversified  Global Alpha

Poor diversification

The 3 months correlation between Global and Global is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Global Diversified Income and The Global Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Alpha and Global Diversified 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 Diversified Income are associated (or correlated) with Global Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Alpha has no effect on the direction of Global Diversified i.e., Global Diversified and Global Alpha go up and down completely randomly.

Pair Corralation between Global Diversified and Global Alpha

Assuming the 90 days horizon Global Diversified Income is expected to generate 0.09 times more return on investment than Global Alpha. However, Global Diversified Income is 10.7 times less risky than Global Alpha. It trades about -0.39 of its potential returns per unit of risk. The Global Alpha is currently generating about -0.29 per unit of risk. If you would invest  1,206  in Global Diversified Income on October 7, 2024 and sell it today you would lose (21.00) from holding Global Diversified Income or give up 1.74% of portfolio value over 90 days.

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

Global Diversified Income  vs.  The Global Alpha

Global Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Alpha

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Global Alpha has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Global Diversified and Global Alpha

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

The idea behind Global Diversified Income and The Global Alpha 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.