Correlation Between International Equity and Edge Midcap
Can any of the company-specific risk be diversified away by investing in both International Equity and Edge Midcap 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 Edge Midcap 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 Edge Midcap Fund, you can compare the effects of market volatilities on International Equity and Edge Midcap 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 Edge Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Edge Midcap.
Diversification Opportunities for International Equity and Edge Midcap
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Edge is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Edge Midcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edge Midcap Fund 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 Edge Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edge Midcap Fund has no effect on the direction of International Equity i.e., International Equity and Edge Midcap go up and down completely randomly.
Pair Corralation between International Equity and Edge Midcap
Assuming the 90 days horizon International Equity is expected to generate 2.96 times less return on investment than Edge Midcap. But when comparing it to its historical volatility, International Equity Index is 1.11 times less risky than Edge Midcap. It trades about 0.03 of its potential returns per unit of risk. Edge Midcap Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,116 in Edge Midcap Fund on September 1, 2024 and sell it today you would earn a total of 309.00 from holding Edge Midcap Fund or generate 27.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.46% |
| Values | Daily Returns |
International Equity Index vs. Edge Midcap Fund
Performance |
| Timeline |
| International Equity |
| Edge Midcap Fund |
International Equity and Edge Midcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Edge Midcap
The main advantage of trading using opposite International Equity and Edge Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Edge Midcap 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 Edge Midcap will offset losses from the drop in Edge Midcap's long position.The idea behind International Equity Index and Edge Midcap 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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