Correlation Between International Opportunity and International Value
Can any of the company-specific risk be diversified away by investing in both International Opportunity and International Value 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 Opportunity and International Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Opportunity Portfolio and International Value Fund, you can compare the effects of market volatilities on International Opportunity and International Value 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 Opportunity with a short position of International Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Opportunity and International Value.
Diversification Opportunities for International Opportunity and International Value
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between International and International is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding International Opportunity Port and International Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Value and International Opportunity 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 Opportunity Portfolio are associated (or correlated) with International Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Value has no effect on the direction of International Opportunity i.e., International Opportunity and International Value go up and down completely randomly.
Pair Corralation between International Opportunity and International Value
Assuming the 90 days horizon International Opportunity Portfolio is expected to generate 0.93 times more return on investment than International Value. However, International Opportunity Portfolio is 1.07 times less risky than International Value. It trades about 0.12 of its potential returns per unit of risk. International Value Fund is currently generating about -0.11 per unit of risk. If you would invest 2,793 in International Opportunity Portfolio on September 3, 2024 and sell it today you would earn a total of 53.00 from holding International Opportunity Portfolio or generate 1.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Opportunity Port vs. International Value Fund
Performance |
| Timeline |
| International Opportunity |
| International Value |
International Opportunity and International Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Opportunity and International Value
The main advantage of trading using opposite International Opportunity and International Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Opportunity position performs unexpectedly, International Value 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 Value will offset losses from the drop in International Value's long position.The idea behind International Opportunity Portfolio and International Value 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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