Correlation Between Real Assets and International Equity
Can any of the company-specific risk be diversified away by investing in both Real Assets 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 Real Assets and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Assets Portfolio and International Equity Portfolio, you can compare the effects of market volatilities on Real Assets 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 Real Assets with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Assets and International Equity.
Diversification Opportunities for Real Assets and International Equity
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Real and International is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Real Assets 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 Real Assets 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 Real Assets 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 Real Assets i.e., Real Assets and International Equity go up and down completely randomly.
Pair Corralation between Real Assets and International Equity
Assuming the 90 days horizon Real Assets Portfolio is expected to generate 0.51 times more return on investment than International Equity. However, Real Assets Portfolio is 1.97 times less risky than International Equity. It trades about 0.04 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.01 per unit of risk. If you would invest 1,070 in Real Assets Portfolio on September 1, 2024 and sell it today you would earn a total of 25.00 from holding Real Assets Portfolio or generate 2.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Real Assets Portfolio vs. International Equity Portfolio
Performance |
| Timeline |
| Real Assets Portfolio |
| International Equity |
Real Assets and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Assets and International Equity
The main advantage of trading using opposite Real Assets and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Assets 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.| Real Assets vs. Emerging Markets Equity | Real Assets vs. Global Fixed Income | Real Assets vs. Global Fixed Income | Real Assets vs. Global Fixed Income |
| 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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