Correlation Between Portfolio and Domini Impact

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

By analyzing existing cross correlation between Portfolio 21 Global and Domini Impact Equity, you can compare the effects of market volatilities on Portfolio and Domini Impact 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 Portfolio with a short position of Domini Impact. Check out your portfolio center. Please also check ongoing floating volatility patterns of Portfolio and Domini Impact.

Diversification Opportunities for Portfolio and Domini Impact

0.75

Correlation Coefficient

Portfolio  Domini Impact

Poor diversification

The 3 months correlation between Portfolio and Domini is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Portfolio 21 Global and Domini Impact Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Domini Impact Equity and Portfolio 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 Portfolio 21 Global are associated (or correlated) with Domini Impact. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Domini Impact Equity has no effect on the direction of Portfolio i.e., Portfolio and Domini Impact go up and down completely randomly.

Pair Corralation between Portfolio and Domini Impact

Assuming the 90 days horizon Portfolio 21 Global is expected to under-perform the Domini Impact. In addition to that, Portfolio is 1.1 times more volatile than Domini Impact Equity. It trades about -0.14 of its total potential returns per unit of risk. Domini Impact Equity is currently generating about -0.08 per unit of volatility. If you would invest  4,020  in Domini Impact Equity on December 2, 2024 and sell it today you would lose (256.00) from holding Domini Impact Equity or give up 6.37% of portfolio value over 90 days.

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

Portfolio 21 Global  vs.  Domini Impact Equity

Portfolio 21 Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days Portfolio 21 Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Domini Impact Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Portfolio and Domini Impact

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

The idea behind Portfolio 21 Global and Domini Impact Equity 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.

Check out your portfolio center.

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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.