Correlation Between Global Bond and International Equity
Can any of the company-specific risk be diversified away by investing in both Global Bond and International Equity 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 Global Bond and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Bond Fund and International Equity Index, you can compare the effects of market volatilities on Global Bond and International Equity 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 Global Bond with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Bond and International Equity.
Diversification Opportunities for Global Bond and International Equity
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and International is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Global Bond Fund and International Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Global Bond 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 Global Bond Fund are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Global Bond i.e., Global Bond and International Equity go up and down completely randomly.
Pair Corralation between Global Bond and International Equity
Assuming the 90 days horizon Global Bond is expected to generate 3.6 times less return on investment than International Equity. But when comparing it to its historical volatility, Global Bond Fund is 2.89 times less risky than International Equity. It trades about 0.04 of its potential returns per unit of risk. International Equity Index is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,089 in International Equity Index on November 3, 2024 and sell it today you would earn a total of 117.00 from holding International Equity Index or generate 10.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Bond Fund vs. International Equity Index
Performance |
| Timeline |
| Global Bond Fund |
| International Equity |
Global Bond and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Bond and International Equity
The main advantage of trading using opposite Global Bond and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Bond position performs unexpectedly, International Equity 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 Equity will offset losses from the drop in International Equity's long position.| Global Bond vs. Davis Financial Fund | Global Bond vs. 1919 Financial Services | Global Bond vs. Financials Ultrasector Profund | Global Bond vs. Gabelli Global Financial |
| International Equity vs. Voya Retirement Servative | International Equity vs. Wilmington Trust Retirement | International Equity vs. Jp Morgan Smartretirement | International Equity vs. Voya Target Retirement |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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