Correlation Between Long Term and Global Alpha

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

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

Diversification Opportunities for Long Term and Global Alpha

0.88

Correlation Coefficient

Long Term  Global Alpha

Very poor diversification

The 3 months correlation between Long and Global is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding The Long Term and The Global Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Alpha and Long Term 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 The Long Term are associated (or correlated) with Global Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Alpha has no effect on the direction of Long Term i.e., Long Term and Global Alpha go up and down completely randomly.

Pair Corralation between Long Term and Global Alpha

Assuming the 90 days horizon The Long Term is expected to generate 1.47 times more return on investment than Global Alpha. However, Long Term is 1.47 times more volatile than The Global Alpha. It trades about 0.24 of its potential returns per unit of risk. The Global Alpha is currently generating about 0.13 per unit of risk. If you would invest  2,871  in The Long Term on August 31, 2024 and sell it today you would earn a total of  524.00  from holding The Long Term or generate 18.25% return on investment over 90 days.

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

The Long Term  vs.  The Global Alpha

Long Term

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Long Term showed solid returns over the last few months and may actually be approaching a breakup point.

Global Alpha

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Global Alpha are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Global Alpha may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Long Term and Global Alpha

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

The idea behind The Long Term and The Global Alpha 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.