Correlation Between International Equity and Diversified Real
Can any of the company-specific risk be diversified away by investing in both International Equity and Diversified Real 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 Diversified Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Index and Diversified Real Asset, you can compare the effects of market volatilities on International Equity and Diversified Real 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 Diversified Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Diversified Real.
Diversification Opportunities for International Equity and Diversified Real
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Diversified is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Diversified Real Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Real Asset 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 Index are associated (or correlated) with Diversified Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Real Asset has no effect on the direction of International Equity i.e., International Equity and Diversified Real go up and down completely randomly.
Pair Corralation between International Equity and Diversified Real
Assuming the 90 days horizon International Equity Index is expected to generate 1.5 times more return on investment than Diversified Real. However, International Equity is 1.5 times more volatile than Diversified Real Asset. It trades about 0.16 of its potential returns per unit of risk. Diversified Real Asset is currently generating about 0.05 per unit of risk. If you would invest 1,168 in International Equity Index on September 13, 2024 and sell it today you would earn a total of 21.00 from holding International Equity Index or generate 1.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Index vs. Diversified Real Asset
Performance |
| Timeline |
| International Equity |
| Diversified Real Asset |
International Equity and Diversified Real Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Diversified Real
The main advantage of trading using opposite International Equity and Diversified Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Diversified Real 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 Diversified Real will offset losses from the drop in Diversified Real's long position.| International Equity vs. Lsv Small Cap | International Equity vs. Vanguard Small Cap Value | International Equity vs. Pace Smallmedium Value | International Equity vs. Great West Loomis Sayles |
| Diversified Real vs. Prudential Short Duration | Diversified Real vs. Easterly Snow Longshort | Diversified Real vs. Quantitative Longshort Equity | Diversified Real vs. Aqr Long Short Equity |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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