Correlation Between Corporate Bond and International Equity
Can any of the company-specific risk be diversified away by investing in both Corporate Bond 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 Corporate Bond and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Corporate Bond Portfolio and International Equity Portfolio, you can compare the effects of market volatilities on Corporate Bond 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 Corporate Bond with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Corporate Bond and International Equity.
Diversification Opportunities for Corporate Bond and International Equity
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Corporate and International is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Corporate Bond Portfolio and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Corporate Bond 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 Corporate Bond Portfolio 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 Corporate Bond i.e., Corporate Bond and International Equity go up and down completely randomly.
Pair Corralation between Corporate Bond and International Equity
Assuming the 90 days horizon Corporate Bond Portfolio is expected to generate 0.48 times more return on investment than International Equity. However, Corporate Bond Portfolio is 2.09 times less risky than International Equity. It trades about 0.06 of its potential returns per unit of risk. International Equity Portfolio is currently generating about 0.02 per unit of risk. If you would invest 967.00 in Corporate Bond Portfolio on August 26, 2024 and sell it today you would earn a total of 88.00 from holding Corporate Bond Portfolio or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Corporate Bond Portfolio vs. International Equity Portfolio
Performance |
| Timeline |
| Corporate Bond Portfolio |
| International Equity |
Corporate Bond and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Corporate Bond and International Equity
The main advantage of trading using opposite Corporate Bond and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Corporate Bond 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.| Corporate Bond vs. International Equity Portfolio | Corporate Bond vs. Royce Special Equity | Corporate Bond vs. Growth Portfolio Class | Corporate Bond vs. Small Pany Growth |
| International Equity vs. T Rowe Price | International Equity vs. Causeway International Value | International Equity vs. Short Term Fund Administrative | International Equity vs. Miller Opportunity Trust |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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