Correlation Between Main Sector and Global X

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

By analyzing existing cross correlation between Main Sector Rotation and Global X Thematic, you can compare the effects of market volatilities on Main Sector and Global X 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 Main Sector with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Main Sector and Global X.

Diversification Opportunities for Main Sector and Global X

0.37

Correlation Coefficient

Main Sector  Global X

Weak diversification

The 3 months correlation between Main and Global is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Main Sector Rotation and Global X Thematic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Thematic and Main Sector 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 Main Sector Rotation are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Thematic has no effect on the direction of Main Sector i.e., Main Sector and Global X go up and down completely randomly.

Pair Corralation between Main Sector and Global X

Given the investment horizon of 90 days Main Sector is expected to generate 2.74 times less return on investment than Global X. But when comparing it to its historical volatility, Main Sector Rotation is 1.01 times less risky than Global X. It trades about 0.02 of its potential returns per unit of risk. Global X Thematic is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,381  in Global X Thematic on October 22, 2024 and sell it today you would earn a total of  27.00  from holding Global X Thematic or generate 1.13% return on investment over 90 days.

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

Main Sector Rotation  vs.  Global X Thematic

Main Sector Rotation

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Main Sector Rotation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Main Sector is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Global X Thematic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X Thematic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Global X is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Main Sector and Global X

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

The idea behind Main Sector Rotation and Global X Thematic 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.