Correlation Between International Equity and Large Cap
Can any of the company-specific risk be diversified away by investing in both International Equity and Large Cap 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 Large Cap 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 Large Cap Equity, you can compare the effects of market volatilities on International Equity and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Large Cap.
Diversification Opportunities for International Equity and Large Cap
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between International and Large is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Large Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Equity 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Equity has no effect on the direction of International Equity i.e., International Equity and Large Cap go up and down completely randomly.
Pair Corralation between International Equity and Large Cap
Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Large Cap. In addition to that, International Equity is 1.84 times more volatile than Large Cap Equity. It trades about -0.02 of its total potential returns per unit of risk. Large Cap Equity is currently generating about 0.08 per unit of volatility. If you would invest 1,998 in Large Cap Equity on October 28, 2024 and sell it today you would earn a total of 679.00 from holding Large Cap Equity or generate 33.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Portfolio vs. Large Cap Equity
Performance |
| Timeline |
| International Equity |
| Large Cap Equity |
International Equity and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Large Cap
The main advantage of trading using opposite International Equity and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.| International Equity vs. Invesco Stock Fund | International Equity vs. Growth Portfolio Class | International Equity vs. Aquagold International | International Equity vs. Morningstar Unconstrained Allocation |
| Large Cap vs. Transamerica Asset Allocation | Large Cap vs. Vy T Rowe | Large Cap vs. Tiaa Cref Lifestyle Servative | Large Cap vs. Delaware Limited Term Diversified |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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