Correlation Between Broad Cap and Global Social

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

By analyzing existing cross correlation between Broad Cap Value and Global Social Awareness, you can compare the effects of market volatilities on Broad Cap and Global Social 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 Broad Cap with a short position of Global Social. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broad Cap and Global Social.

Diversification Opportunities for Broad Cap and Global Social

-0.13

Correlation Coefficient

Broad Cap  Global Social

Good diversification

The 3 months correlation between Broad and Global is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Broad Cap Value and Global Social Awareness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Social Awareness and Broad Cap 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 Broad Cap Value are associated (or correlated) with Global Social. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Social Awareness has no effect on the direction of Broad Cap i.e., Broad Cap and Global Social go up and down completely randomly.

Pair Corralation between Broad Cap and Global Social

Assuming the 90 days horizon Broad Cap Value is expected to under-perform the Global Social. In addition to that, Broad Cap is 1.17 times more volatile than Global Social Awareness. It trades about -0.05 of its total potential returns per unit of risk. Global Social Awareness is currently generating about 0.12 per unit of volatility. If you would invest  2,373  in Global Social Awareness on December 29, 2024 and sell it today you would earn a total of  146.00  from holding Global Social Awareness or generate 6.15% return on investment over 90 days.

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

Broad Cap Value  vs.  Global Social Awareness

Broad Cap Value

Risk-Adjusted Performance

Very Weak

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

Global Social Awareness

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Social Awareness are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Social may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Broad Cap and Global Social

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

The idea behind Broad Cap Value and Global Social Awareness 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.