Correlation Between Global X and Essential

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

By analyzing existing cross correlation between Global X SP and Essential 40 Stock, you can compare the effects of market volatilities on Global X and Essential 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 Essential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and Essential.

Diversification Opportunities for Global X and Essential

0.16

Correlation Coefficient

Global X  Essential

Average diversification

The 3 months correlation between Global and Essential is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Global X SP and Essential 40 Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential 40 Stock 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 SP are associated (or correlated) with Essential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential 40 Stock has no effect on the direction of Global X i.e., Global X and Essential go up and down completely randomly.

Pair Corralation between Global X and Essential

Given the investment horizon of 90 days Global X SP is expected to generate 0.92 times more return on investment than Essential. However, Global X SP is 1.08 times less risky than Essential. It trades about 0.2 of its potential returns per unit of risk. Essential 40 Stock is currently generating about 0.06 per unit of risk. If you would invest  3,129  in Global X SP on September 12, 2024 and sell it today you would earn a total of  219.00  from holding Global X SP or generate 7.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	58.73%
Values	Daily Returns

Global X SP  vs.  Essential 40 Stock

Global X SP

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global X SP are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent essential indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Essential 40 Stock

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Essential 40 Stock are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Essential is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Global X and Essential

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

The idea behind Global X SP and Essential 40 Stock 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.