Correlation Between Quant and Global Opportunity

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

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

Diversification Opportunities for Quant and Global Opportunity

0.58

Correlation Coefficient

Quant  Global Opportunity

Very weak diversification

The 3 months correlation between Quant and Global is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Quant and Global Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Opportunity and Quant 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 Quant are associated (or correlated) with Global Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Opportunity has no effect on the direction of Quant i.e., Quant and Global Opportunity go up and down completely randomly.

Pair Corralation between Quant and Global Opportunity

Assuming the 90 days trading horizon Quant is expected to under-perform the Global Opportunity. In addition to that, Quant is 6.95 times more volatile than Global Opportunity Portfolio. It trades about -0.1 of its total potential returns per unit of risk. Global Opportunity Portfolio is currently generating about -0.24 per unit of volatility. If you would invest  3,109  in Global Opportunity Portfolio on January 20, 2024 and sell it today you would lose (122.00) from holding Global Opportunity Portfolio or give up 3.92% of portfolio value over 90 days.

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

Quant  vs.  Global Opportunity Portfolio

Quant

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Quant are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Quant may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Global Opportunity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Opportunity Portfolio are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Global Opportunity may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Quant and Global Opportunity

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

The idea behind Quant and Global Opportunity Portfolio 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.