Correlation Between Energy Basic and Global Diversified

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

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

Diversification Opportunities for Energy Basic and Global Diversified

0.0

Correlation Coefficient

Energy Basic  Global Diversified

Pay attention - limited upside

The 3 months correlation between Energy and Global is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Global Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Diversified Income and Energy Basic 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 Energy Basic Materials are associated (or correlated) with Global Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Diversified Income has no effect on the direction of Energy Basic i.e., Energy Basic and Global Diversified go up and down completely randomly.

Pair Corralation between Energy Basic and Global Diversified

Assuming the 90 days horizon Energy Basic Materials is expected to under-perform the Global Diversified. In addition to that, Energy Basic is 4.79 times more volatile than Global Diversified Income. It trades about -0.03 of its total potential returns per unit of risk. Global Diversified Income is currently generating about -0.08 per unit of volatility. If you would invest  1,210  in Global Diversified Income on September 15, 2024 and sell it today you would lose (11.00) from holding Global Diversified Income or give up 0.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Energy Basic Materials  vs.  Global Diversified Income

Energy Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Global Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Diversified Income has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Energy Basic and Global Diversified

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

The idea behind Energy Basic Materials and Global Diversified Income 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.