Correlation Between Global Hard and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Global Hard and Basic Materials 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 Hard and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Hard Assets and Basic Materials Fund, you can compare the effects of market volatilities on Global Hard and Basic Materials 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 Hard with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Hard and Basic Materials.
Diversification Opportunities for Global Hard and Basic Materials
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and Basic is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Global Hard Assets and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Global Hard 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 Hard Assets are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Global Hard i.e., Global Hard and Basic Materials go up and down completely randomly.
Pair Corralation between Global Hard and Basic Materials
Assuming the 90 days horizon Global Hard Assets is expected to generate 1.03 times more return on investment than Basic Materials. However, Global Hard is 1.03 times more volatile than Basic Materials Fund. It trades about 0.08 of its potential returns per unit of risk. Basic Materials Fund is currently generating about 0.02 per unit of risk. If you would invest 4,020 in Global Hard Assets on March 16, 2024 and sell it today you would earn a total of 202.00 from holding Global Hard Assets or generate 5.02% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Global Hard Assets vs. Basic Materials Fund
Performance |
Timeline |
Global Hard Assets |
Basic Materials |
Global Hard and Basic Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Global Hard and Basic Materials
The main advantage of trading using opposite Global Hard and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Hard position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.Global Hard vs. T Rowe Price | Global Hard vs. Gmo Resources | Global Hard vs. Morningstar Unconstrained Allocation | Global Hard vs. Via Renewables |
Basic Materials vs. T Rowe Price | Basic Materials vs. Gmo Resources | Basic Materials vs. Morningstar Unconstrained Allocation | Basic Materials vs. Via Renewables |
Check out your portfolio center.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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