Correlation Between International Equity and Overseas Fund
Can any of the company-specific risk be diversified away by investing in both International Equity and Overseas Fund 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 Overseas Fund 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 Overseas Fund Institutional, you can compare the effects of market volatilities on International Equity and Overseas Fund 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 Overseas Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Overseas Fund.
Diversification Opportunities for International Equity and Overseas Fund
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Overseas is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Overseas Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overseas Fund Instit 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 Overseas Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overseas Fund Instit has no effect on the direction of International Equity i.e., International Equity and Overseas Fund go up and down completely randomly.
Pair Corralation between International Equity and Overseas Fund
Assuming the 90 days horizon International Equity Index is expected to generate 0.9 times more return on investment than Overseas Fund. However, International Equity Index is 1.11 times less risky than Overseas Fund. It trades about 0.33 of its potential returns per unit of risk. Overseas Fund Institutional is currently generating about 0.28 per unit of risk. If you would invest 1,094 in International Equity Index on November 3, 2024 and sell it today you would earn a total of 58.00 from holding International Equity Index or generate 5.3% 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. Overseas Fund Institutional
Performance |
| Timeline |
| International Equity |
| Overseas Fund Instit |
International Equity and Overseas Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Overseas Fund
The main advantage of trading using opposite International Equity and Overseas Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Overseas Fund 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 Overseas Fund will offset losses from the drop in Overseas Fund's long position.The idea behind International Equity Index and Overseas Fund Institutional pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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