Correlation Between International Equity and Stock Index
Can any of the company-specific risk be diversified away by investing in both International Equity and Stock Index 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 Stock Index 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 Stock Index Fund, you can compare the effects of market volatilities on International Equity and Stock Index 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 Stock Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Stock Index.
Diversification Opportunities for International Equity and Stock Index
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between International and Stock is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Fund and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund 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 Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of International Equity i.e., International Equity and Stock Index go up and down completely randomly.
Pair Corralation between International Equity and Stock Index
Assuming the 90 days horizon International Equity Fund is expected to under-perform the Stock Index. In addition to that, International Equity is 1.08 times more volatile than Stock Index Fund. It trades about -0.1 of its total potential returns per unit of risk. Stock Index Fund is currently generating about 0.16 per unit of volatility. If you would invest 4,065 in Stock Index Fund on August 28, 2024 and sell it today you would earn a total of 321.00 from holding Stock Index Fund or generate 7.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Fund vs. Stock Index Fund
Performance |
| Timeline |
| International Equity |
| Stock Index Fund |
International Equity and Stock Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Stock Index
The main advantage of trading using opposite International Equity and Stock Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Stock Index 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 Stock Index will offset losses from the drop in Stock Index's long position.| International Equity vs. James Balanced Golden | International Equity vs. Fidelity Advisor Gold | International Equity vs. Franklin Gold Precious | International Equity vs. Europac Gold Fund |
| Stock Index vs. Value Fund Value | Stock Index vs. Growth Fund Growth | Stock Index vs. International Equity Fund | Stock Index vs. Short Term Bond Fund |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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