Correlation Between Commodities Strategy and Global Equity

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

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

Diversification Opportunities for Commodities Strategy and Global Equity

-0.15

Correlation Coefficient

Commodities Strategy  Global Equity

Good diversification

The 3 months correlation between Commodities and Global is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Commodities Strategy Fund and Global Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Equity and Commodities Strategy 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 Commodities Strategy Fund are associated (or correlated) with Global Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Equity has no effect on the direction of Commodities Strategy i.e., Commodities Strategy and Global Equity go up and down completely randomly.

Pair Corralation between Commodities Strategy and Global Equity

Assuming the 90 days horizon Commodities Strategy Fund is expected to generate 1.06 times more return on investment than Global Equity. However, Commodities Strategy is 1.06 times more volatile than Global Equity Fund. It trades about 0.09 of its potential returns per unit of risk. Global Equity Fund is currently generating about 0.06 per unit of risk. If you would invest  14,735  in Commodities Strategy Fund on December 22, 2024 and sell it today you would earn a total of  615.00  from holding Commodities Strategy Fund or generate 4.17% return on investment over 90 days.

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

Commodities Strategy Fund  vs.  Global Equity Fund

Commodities Strategy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commodities Strategy Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Commodities Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Equity

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Equity Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Global Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Commodities Strategy and Global Equity

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

The idea behind Commodities Strategy Fund and Global Equity 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.