Correlation Between US Global and Rational Inflation

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

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

Diversification Opportunities for US Global and Rational Inflation

Poor diversification

The 3 months correlation between SEA and Rational is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding US Global Sea and Rational Inflation Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Inflation Growth and US Global 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 US Global Sea are associated (or correlated) with Rational Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Inflation Growth has no effect on the direction of US Global i.e., US Global and Rational Inflation go up and down completely randomly.

Pair Corralation between US Global and Rational Inflation

Considering the 90-day investment horizon US Global Sea is expected to generate 1.4 times more return on investment than Rational Inflation. However, US Global is 1.4 times more volatile than Rational Inflation Growth. It trades about 0.11 of its potential returns per unit of risk. Rational Inflation Growth is currently generating about 0.12 per unit of risk. If you would invest  1,503  in US Global Sea on September 3, 2023 and sell it today you would earn a total of  37.00  from holding US Global Sea or generate 2.46% return on investment over 90 days.

US Global Sea  vs.  Rational Inflation Growth

US Global Sea

SEA Performance

3 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in US Global Sea are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, US Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rational Inflation Growth

Rational Performance

0 of 100

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

Pair Trading with US Global and Rational Inflation

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

The idea behind US Global Sea and Rational Inflation Growth 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.