Correlation Between International Equity and Defensive Market
Can any of the company-specific risk be diversified away by investing in both International Equity and Defensive Market 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 International Equity and Defensive Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Institutional and Defensive Market Strategies, you can compare the effects of market volatilities on International Equity and Defensive Market 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 International Equity with a short position of Defensive Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Defensive Market.
Diversification Opportunities for International Equity and Defensive Market
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and Defensive is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Instituti and Defensive Market Strategies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defensive Market Str and International Equity 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 International Equity Institutional are associated (or correlated) with Defensive Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defensive Market Str has no effect on the direction of International Equity i.e., International Equity and Defensive Market go up and down completely randomly.
Pair Corralation between International Equity and Defensive Market
Assuming the 90 days horizon International Equity Institutional is expected to generate 1.97 times more return on investment than Defensive Market. However, International Equity is 1.97 times more volatile than Defensive Market Strategies. It trades about 0.32 of its potential returns per unit of risk. Defensive Market Strategies is currently generating about 0.22 per unit of risk. If you would invest 1,383 in International Equity Institutional on November 9, 2024 and sell it today you would earn a total of 74.00 from holding International Equity Institutional or generate 5.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Instituti vs. Defensive Market Strategies
Performance |
| Timeline |
| International Equity |
| Defensive Market Str |
International Equity and Defensive Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Defensive Market
The main advantage of trading using opposite International Equity and Defensive Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Defensive Market 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 Defensive Market will offset losses from the drop in Defensive Market's long position.| International Equity vs. Cmg Ultra Short | International Equity vs. Calvert Short Duration | International Equity vs. Touchstone Ultra Short | International Equity vs. Transam Short Term Bond |
| Defensive Market vs. Financial Industries Fund | Defensive Market vs. Fidelity Advisor Financial | Defensive Market vs. Financial Services Portfolio | Defensive Market vs. Blackrock Financial Institutions |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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