Correlation Between Commonwealth Global and Moderate Balanced

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

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

Diversification Opportunities for Commonwealth Global and Moderate Balanced

0.73

Correlation Coefficient

Commonwealth Global  Moderate Balanced

Poor diversification

The 3 months correlation between Commonwealth and Moderate is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund and Moderate Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Balanced and Commonwealth Global 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 Commonwealth Global Fund are associated (or correlated) with Moderate Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Balanced has no effect on the direction of Commonwealth Global i.e., Commonwealth Global and Moderate Balanced go up and down completely randomly.

Pair Corralation between Commonwealth Global and Moderate Balanced

Assuming the 90 days horizon Commonwealth Global is expected to generate 1.27 times less return on investment than Moderate Balanced. In addition to that, Commonwealth Global is 1.42 times more volatile than Moderate Balanced Allocation. It trades about 0.09 of its total potential returns per unit of risk. Moderate Balanced Allocation is currently generating about 0.15 per unit of volatility. If you would invest  1,205  in Moderate Balanced Allocation on September 14, 2024 and sell it today you would earn a total of  56.00  from holding Moderate Balanced Allocation or generate 4.65% return on investment over 90 days.

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

Commonwealth Global Fund  vs.  Moderate Balanced Allocation

Commonwealth Global

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Global Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Commonwealth Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Moderate Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderate Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Commonwealth Global and Moderate Balanced

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

The idea behind Commonwealth Global Fund and Moderate Balanced Allocation 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.