Correlation Between International Equity and Corporate Bond
Can any of the company-specific risk be diversified away by investing in both International Equity and Corporate Bond 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 Corporate Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Portfolio and Corporate Bond Portfolio, you can compare the effects of market volatilities on International Equity and Corporate Bond 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 Corporate Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Corporate Bond.
Diversification Opportunities for International Equity and Corporate Bond
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Corporate is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Corporate Bond Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Bond Portfolio 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 Portfolio are associated (or correlated) with Corporate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Bond Portfolio has no effect on the direction of International Equity i.e., International Equity and Corporate Bond go up and down completely randomly.
Pair Corralation between International Equity and Corporate Bond
Assuming the 90 days horizon International Equity Portfolio is expected to generate 2.17 times more return on investment than Corporate Bond. However, International Equity is 2.17 times more volatile than Corporate Bond Portfolio. It trades about 0.09 of its potential returns per unit of risk. Corporate Bond Portfolio is currently generating about 0.03 per unit of risk. If you would invest 1,007 in International Equity Portfolio on October 23, 2024 and sell it today you would earn a total of 11.00 from holding International Equity Portfolio or generate 1.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Portfolio vs. Corporate Bond Portfolio
Performance |
| Timeline |
| International Equity |
| Corporate Bond Portfolio |
International Equity and Corporate Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Corporate Bond
The main advantage of trading using opposite International Equity and Corporate Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Corporate Bond 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 Corporate Bond will offset losses from the drop in Corporate Bond's long position.| International Equity vs. Emerging Markets Portfolio | International Equity vs. Growth Portfolio Class | International Equity vs. Small Pany Growth | International Equity vs. Mid Cap Growth |
| Corporate Bond vs. International Equity Portfolio | Corporate Bond vs. Royce Special Equity | Corporate Bond vs. Growth Portfolio Class | Corporate Bond vs. Small Pany Growth |
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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