Correlation Between Equity Growth and Global Gold

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

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

Diversification Opportunities for Equity Growth and Global Gold

-0.51

Correlation Coefficient

Equity Growth  Global Gold

Excellent diversification

The 3 months correlation between Equity and Global is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Global Gold Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Gold Fund and Equity Growth 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 Equity Growth Fund are associated (or correlated) with Global Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Gold Fund has no effect on the direction of Equity Growth i.e., Equity Growth and Global Gold go up and down completely randomly.

Pair Corralation between Equity Growth and Global Gold

Assuming the 90 days horizon Equity Growth Fund is expected to generate 0.41 times more return on investment than Global Gold. However, Equity Growth Fund is 2.43 times less risky than Global Gold. It trades about 0.1 of its potential returns per unit of risk. Global Gold Fund is currently generating about -0.11 per unit of risk. If you would invest  3,235  in Equity Growth Fund on September 22, 2024 and sell it today you would earn a total of  165.00  from holding Equity Growth Fund or generate 5.1% return on investment over 90 days.

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

Equity Growth Fund  vs.  Global Gold Fund

Equity Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Growth Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Equity Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Gold Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Gold Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Equity Growth and Global Gold

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

The idea behind Equity Growth Fund and Global Gold 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.

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