Correlation Between Homestead Intermediate and International Equity
Can any of the company-specific risk be diversified away by investing in both Homestead Intermediate 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 Homestead Intermediate and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Homestead Intermediate Bond and International Equity Fund, you can compare the effects of market volatilities on Homestead Intermediate 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 Homestead Intermediate with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Homestead Intermediate and International Equity.
Diversification Opportunities for Homestead Intermediate and International Equity
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Homestead and International is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Homestead Intermediate Bond and International Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Homestead Intermediate 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 Homestead Intermediate Bond 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 Homestead Intermediate i.e., Homestead Intermediate and International Equity go up and down completely randomly.
Pair Corralation between Homestead Intermediate and International Equity
Assuming the 90 days horizon Homestead Intermediate Bond is expected to generate 0.4 times more return on investment than International Equity. However, Homestead Intermediate Bond is 2.48 times less risky than International Equity. It trades about 0.11 of its potential returns per unit of risk. International Equity Fund is currently generating about 0.04 per unit of risk. If you would invest 435.00 in Homestead Intermediate Bond on August 28, 2024 and sell it today you would earn a total of 23.00 from holding Homestead Intermediate Bond or generate 5.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Homestead Intermediate Bond vs. International Equity Fund
Performance |
| Timeline |
| Homestead Intermediate |
| International Equity |
Homestead Intermediate and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Homestead Intermediate and International Equity
The main advantage of trading using opposite Homestead Intermediate and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Homestead Intermediate 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.The idea behind Homestead Intermediate Bond and International Equity Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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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