Correlation Between Global X and COVANTA

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

By analyzing existing cross correlation between Global X NASDAQ and COVANTA HLDG P, you can compare the effects of market volatilities on Global X and COVANTA 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 COVANTA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and COVANTA.

Diversification Opportunities for Global X and COVANTA

-0.52

Correlation Coefficient

Global X  COVANTA

Excellent diversification

The 3 months correlation between Global and COVANTA is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Global X NASDAQ and COVANTA HLDG P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COVANTA HLDG P 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 NASDAQ are associated (or correlated) with COVANTA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COVANTA HLDG P has no effect on the direction of Global X i.e., Global X and COVANTA go up and down completely randomly.

Pair Corralation between Global X and COVANTA

Given the investment horizon of 90 days Global X is expected to generate 42.44 times less return on investment than COVANTA. But when comparing it to its historical volatility, Global X NASDAQ is 86.26 times less risky than COVANTA. It trades about 0.1 of its potential returns per unit of risk. COVANTA HLDG P is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,472  in COVANTA HLDG P on September 30, 2024 and sell it today you would lose (437.00) from holding COVANTA HLDG P or give up 5.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.96%
Values	Daily Returns

Global X NASDAQ  vs.  COVANTA HLDG P

Global X NASDAQ

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global X NASDAQ are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Global X is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

COVANTA HLDG P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COVANTA HLDG P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat 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 COVANTA HLDG P investors.

Pair Trading with Global X and COVANTA

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

The idea behind Global X NASDAQ and COVANTA HLDG P 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.