Correlation Between International Small and Blue Chip
Can any of the company-specific risk be diversified away by investing in both International Small and Blue Chip 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 Small and Blue Chip into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Small Pany and Blue Chip Fund, you can compare the effects of market volatilities on International Small and Blue Chip 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 Small with a short position of Blue Chip. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Small and Blue Chip.
Diversification Opportunities for International Small and Blue Chip
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Blue is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding International Small Pany and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund and International Small 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 Small Pany are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of International Small i.e., International Small and Blue Chip go up and down completely randomly.
Pair Corralation between International Small and Blue Chip
Assuming the 90 days horizon International Small is expected to generate 4.15 times less return on investment than Blue Chip. In addition to that, International Small is 1.01 times more volatile than Blue Chip Fund. It trades about 0.03 of its total potential returns per unit of risk. Blue Chip Fund is currently generating about 0.13 per unit of volatility. If you would invest 3,156 in Blue Chip Fund on August 31, 2024 and sell it today you would earn a total of 1,537 from holding Blue Chip Fund or generate 48.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Small Pany vs. Blue Chip Fund
Performance |
| Timeline |
| International Small Pany |
| Blue Chip Fund |
International Small and Blue Chip Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Small and Blue Chip
The main advantage of trading using opposite International Small and Blue Chip positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Small position performs unexpectedly, Blue Chip 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 Blue Chip will offset losses from the drop in Blue Chip's long position.The idea behind International Small Pany and Blue Chip Fund 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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