Correlation Between Global X and ETRACS Alerian

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

By analyzing existing cross correlation between Global X MLP and ETRACS Alerian Midstream, you can compare the effects of market volatilities on Global X and ETRACS Alerian 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 X with a short position of ETRACS Alerian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and ETRACS Alerian.

Diversification Opportunities for Global X and ETRACS Alerian

1.0

Correlation Coefficient

Global X  ETRACS Alerian

No risk reduction

The 3 months correlation between Global and ETRACS is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Global X MLP and ETRACS Alerian Midstream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS Alerian Midstream and Global X 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 X MLP are associated (or correlated) with ETRACS Alerian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS Alerian Midstream has no effect on the direction of Global X i.e., Global X and ETRACS Alerian go up and down completely randomly.

Pair Corralation between Global X and ETRACS Alerian

Given the investment horizon of 90 days Global X is expected to generate 1.02 times less return on investment than ETRACS Alerian. In addition to that, Global X is 1.08 times more volatile than ETRACS Alerian Midstream. It trades about 0.32 of its total potential returns per unit of risk. ETRACS Alerian Midstream is currently generating about 0.35 per unit of volatility. If you would invest  4,646  in ETRACS Alerian Midstream on September 2, 2024 and sell it today you would earn a total of  1,006  from holding ETRACS Alerian Midstream or generate 21.65% return on investment over 90 days.

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

Global X MLP  vs.  ETRACS Alerian Midstream

Global X MLP

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X MLP are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Global X showed solid returns over the last few months and may actually be approaching a breakup point.

ETRACS Alerian Midstream

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Alerian Midstream are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ETRACS Alerian sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global X and ETRACS Alerian

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

The idea behind Global X MLP and ETRACS Alerian Midstream 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 Global Correlations module to find global opportunities by holding instruments from different markets.