Correlation Between Select Fund and Global Bond

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

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

Diversification Opportunities for Select Fund and Global Bond

-0.56

Correlation Coefficient

Select Fund  Global Bond

Excellent diversification

The 3 months correlation between Select and GLOBAL is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Select Fund A and Global Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Bond Fund and Select Fund 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 Select Fund A are associated (or correlated) with Global Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Bond Fund has no effect on the direction of Select Fund i.e., Select Fund and Global Bond go up and down completely randomly.

Pair Corralation between Select Fund and Global Bond

Assuming the 90 days horizon Select Fund A is expected to generate 4.63 times more return on investment than Global Bond. However, Select Fund is 4.63 times more volatile than Global Bond Fund. It trades about 0.23 of its potential returns per unit of risk. Global Bond Fund is currently generating about 0.35 per unit of risk. If you would invest  11,460  in Select Fund A on September 2, 2024 and sell it today you would earn a total of  516.00  from holding Select Fund A or generate 4.5% return on investment over 90 days.

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

Select Fund A  vs.  Global Bond Fund

Select Fund A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund A are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Select Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global Bond Fund

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Bond Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Global Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Select Fund and Global Bond

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

The idea behind Select Fund A and Global Bond 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.