Correlation Between International Equity and Largecap Value
Can any of the company-specific risk be diversified away by investing in both International Equity and Largecap Value 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 Largecap Value 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 Largecap Value Fund, you can compare the effects of market volatilities on International Equity and Largecap Value 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 Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Largecap Value.
Diversification Opportunities for International Equity and Largecap Value
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Largecap is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Value 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 Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of International Equity i.e., International Equity and Largecap Value go up and down completely randomly.
Pair Corralation between International Equity and Largecap Value
Assuming the 90 days horizon International Equity Index is expected to under-perform the Largecap Value. In addition to that, International Equity is 1.09 times more volatile than Largecap Value Fund. It trades about -0.01 of its total potential returns per unit of risk. Largecap Value Fund is currently generating about 0.33 per unit of volatility. If you would invest 2,093 in Largecap Value Fund on September 4, 2024 and sell it today you would earn a total of 116.00 from holding Largecap Value Fund or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Index vs. Largecap Value Fund
Performance |
| Timeline |
| International Equity |
| Largecap Value |
International Equity and Largecap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Largecap Value
The main advantage of trading using opposite International Equity and Largecap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Largecap Value 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 Largecap Value will offset losses from the drop in Largecap Value's long position.| International Equity vs. Multimedia Portfolio Multimedia | International Equity vs. Rbc Global Equity | International Equity vs. Cutler Equity | International Equity vs. Jpmorgan Equity Income |
| Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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