Correlation Between Eafe Choice and Global Alpha

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

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

Diversification Opportunities for Eafe Choice and Global Alpha

0.11

Correlation Coefficient

Eafe Choice  Global Alpha

Average diversification

The 3 months correlation between Eafe and Global is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Choice and The Global Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Alpha and Eafe Choice 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 The Eafe Choice are associated (or correlated) with Global Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Alpha has no effect on the direction of Eafe Choice i.e., Eafe Choice and Global Alpha go up and down completely randomly.

Pair Corralation between Eafe Choice and Global Alpha

Assuming the 90 days horizon The Eafe Choice is expected to generate 0.8 times more return on investment than Global Alpha. However, The Eafe Choice is 1.24 times less risky than Global Alpha. It trades about -0.06 of its potential returns per unit of risk. The Global Alpha is currently generating about -0.1 per unit of risk. If you would invest  1,509  in The Eafe Choice on September 29, 2024 and sell it today you would lose (25.00) from holding The Eafe Choice or give up 1.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

The Eafe Choice  vs.  The Global Alpha

Eafe Choice

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Eafe Choice has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Global Alpha

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Eafe Choice and Global Alpha

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

The idea behind The Eafe Choice and The Global Alpha 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.