Correlation Between Global Strategy and Chestnut Street

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

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

Diversification Opportunities for Global Strategy and Chestnut Street

0.7

Correlation Coefficient

Global Strategy  Chestnut Street

Poor diversification

The 3 months correlation between Global and Chestnut is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Global Strategy Fund and Chestnut Street Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chestnut Street Exchange and Global 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 Global Strategy Fund are associated (or correlated) with Chestnut Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chestnut Street Exchange has no effect on the direction of Global Strategy i.e., Global Strategy and Chestnut Street go up and down completely randomly.

Pair Corralation between Global Strategy and Chestnut Street

Assuming the 90 days horizon Global Strategy Fund is expected to generate 0.67 times more return on investment than Chestnut Street. However, Global Strategy Fund is 1.48 times less risky than Chestnut Street. It trades about -0.13 of its potential returns per unit of risk. Chestnut Street Exchange is currently generating about -0.28 per unit of risk. If you would invest  1,042  in Global Strategy Fund on October 9, 2024 and sell it today you would lose (14.00) from holding Global Strategy Fund or give up 1.34% of portfolio value over 90 days.

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

Global Strategy Fund  vs.  Chestnut Street Exchange

Global Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Chestnut Street Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Global Strategy and Chestnut Street

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

The idea behind Global Strategy Fund and Chestnut Street Exchange 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..