Correlation Between Blue Chip and Global Diversified

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

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

Diversification Opportunities for Blue Chip and Global Diversified

0.44

Correlation Coefficient

Blue Chip  Global Diversified

Very weak diversification

The 3 months correlation between Blue and Global is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Global Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Diversified Income and Blue Chip 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 Blue Chip Fund are associated (or correlated) with Global Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Diversified Income has no effect on the direction of Blue Chip i.e., Blue Chip and Global Diversified go up and down completely randomly.

Pair Corralation between Blue Chip and Global Diversified

Assuming the 90 days horizon Blue Chip is expected to generate 1.04 times less return on investment than Global Diversified. In addition to that, Blue Chip is 4.58 times more volatile than Global Diversified Income. It trades about 0.05 of its total potential returns per unit of risk. Global Diversified Income is currently generating about 0.22 per unit of volatility. If you would invest  1,180  in Global Diversified Income on December 2, 2024 and sell it today you would earn a total of  19.00  from holding Global Diversified Income or generate 1.61% return on investment over 90 days.

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

Blue Chip Fund  vs.  Global Diversified Income

Blue Chip Fund

Risk-Adjusted Performance

Very Weak

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

Global Diversified Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Diversified Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Blue Chip and Global Diversified

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

The idea behind Blue Chip Fund and Global Diversified 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.