Correlation Between International Equity and Short-term Bond
Can any of the company-specific risk be diversified away by investing in both International Equity and Short-term Bond 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 Short-term Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Fund and Short Term Bond Fund, you can compare the effects of market volatilities on International Equity and Short-term Bond 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 Short-term Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Short-term Bond.
Diversification Opportunities for International Equity and Short-term Bond
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Short-term is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Fund and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond 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 Fund are associated (or correlated) with Short-term Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of International Equity i.e., International Equity and Short-term Bond go up and down completely randomly.
Pair Corralation between International Equity and Short-term Bond
Assuming the 90 days horizon International Equity Fund is expected to under-perform the Short-term Bond. In addition to that, International Equity is 6.28 times more volatile than Short Term Bond Fund. It trades about -0.04 of its total potential returns per unit of risk. Short Term Bond Fund is currently generating about 0.07 per unit of volatility. If you would invest 493.00 in Short Term Bond Fund on September 1, 2024 and sell it today you would earn a total of 1.00 from holding Short Term Bond Fund or generate 0.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Fund vs. Short Term Bond Fund
Performance |
| Timeline |
| International Equity |
| Short Term Bond |
International Equity and Short-term Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Short-term Bond
The main advantage of trading using opposite International Equity and Short-term Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Short-term Bond 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 Short-term Bond will offset losses from the drop in Short-term Bond's long position.| International Equity vs. Homestead Rural America | International Equity vs. Small Company Stock Fund | International Equity vs. Stock Index Fund | International Equity vs. Homestead Funds |
| Short-term Bond vs. T Rowe Price | Short-term Bond vs. Tfa Alphagen Growth | Short-term Bond vs. Nationwide Growth Fund | Short-term Bond vs. Victory Rs Small |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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