Correlation Between Inflation Linked and Global Franchise

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

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

Diversification Opportunities for Inflation Linked and Global Franchise

0.51

Correlation Coefficient

Inflation Linked  Global Franchise

Very weak diversification

The 3 months correlation between Inflation and Global is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Linked Fixed Income and Global Franchise Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Franchise Por and Inflation Linked 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 Inflation Linked Fixed Income are associated (or correlated) with Global Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Franchise Por has no effect on the direction of Inflation Linked i.e., Inflation Linked and Global Franchise go up and down completely randomly.

Pair Corralation between Inflation Linked and Global Franchise

Assuming the 90 days horizon Inflation Linked Fixed Income is expected to generate 0.57 times more return on investment than Global Franchise. However, Inflation Linked Fixed Income is 1.75 times less risky than Global Franchise. It trades about -0.1 of its potential returns per unit of risk. Global Franchise Portfolio is currently generating about -0.07 per unit of risk. If you would invest  828.00  in Inflation Linked Fixed Income on August 13, 2024 and sell it today you would lose (5.00) from holding Inflation Linked Fixed Income or give up 0.6% of portfolio value over 90 days.

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

Inflation Linked Fixed Income  vs.  Global Franchise Portfolio

Inflation Linked Fixed

Risk-Adjusted Performance

0 of 100

Weak

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

Global Franchise Por

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Franchise Portfolio are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Global Franchise is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inflation Linked and Global Franchise

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

The idea behind Inflation Linked Fixed Income and Global Franchise 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.