Correlation Between Equity Income and International Growth
Can any of the company-specific risk be diversified away by investing in both Equity Income and International Growth 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 Equity Income and International Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Income Fund and International Growth Fund, you can compare the effects of market volatilities on Equity Income and International Growth 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 Equity Income with a short position of International Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and International Growth.
Diversification Opportunities for Equity Income and International Growth
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Equity and International is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and International Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Growth and Equity Income 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 Equity Income Fund are associated (or correlated) with International Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Growth has no effect on the direction of Equity Income i.e., Equity Income and International Growth go up and down completely randomly.
Pair Corralation between Equity Income and International Growth
Assuming the 90 days horizon Equity Income Fund is expected to generate 0.54 times more return on investment than International Growth. However, Equity Income Fund is 1.85 times less risky than International Growth. It trades about 0.13 of its potential returns per unit of risk. International Growth Fund is currently generating about 0.02 per unit of risk. If you would invest 833.00 in Equity Income Fund on August 25, 2024 and sell it today you would earn a total of 125.00 from holding Equity Income Fund or generate 15.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Income Fund vs. International Growth Fund
Performance |
| Timeline |
| Equity Income |
| International Growth |
Equity Income and International Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and International Growth
The main advantage of trading using opposite Equity Income and International Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income position performs unexpectedly, International Growth 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 International Growth will offset losses from the drop in International Growth's long position.| Equity Income vs. International Growth Fund | Equity Income vs. Growth Fund Investor | Equity Income vs. Equity Income Fund | Equity Income vs. Ultra Fund Investor |
| International Growth vs. Value Fund Investor | International Growth vs. Ultra Fund Investor | International Growth vs. Growth Fund Investor | International Growth vs. Select Fund Investor |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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