Correlation Between Global Diversified and Inflation Protection

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

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

Diversification Opportunities for Global Diversified and Inflation Protection

0.9

Correlation Coefficient

Global Diversified  Inflation Protection

Almost no diversification

The 3 months correlation between Global and Inflation is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Global Diversified Income and Inflation Protection Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protection and Global Diversified 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 Diversified Income are associated (or correlated) with Inflation Protection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protection has no effect on the direction of Global Diversified i.e., Global Diversified and Inflation Protection go up and down completely randomly.

Pair Corralation between Global Diversified and Inflation Protection

Assuming the 90 days horizon Global Diversified Income is expected to generate 0.68 times more return on investment than Inflation Protection. However, Global Diversified Income is 1.47 times less risky than Inflation Protection. It trades about 0.02 of its potential returns per unit of risk. Inflation Protection Fund is currently generating about -0.01 per unit of risk. If you would invest  1,198  in Global Diversified Income on September 2, 2024 and sell it today you would earn a total of  3.00  from holding Global Diversified Income or generate 0.25% return on investment over 90 days.

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

Global Diversified Income  vs.  Inflation Protection Fund

Global Diversified Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Diversified Income are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inflation Protection

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inflation Protection Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inflation Protection 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 Diversified and Inflation Protection

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

The idea behind Global Diversified Income and Inflation Protection 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.