Correlation Between Inverse Government and International Equity
Can any of the company-specific risk be diversified away by investing in both Inverse Government and International Equity 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 Inverse Government and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Government Long and The International Equity, you can compare the effects of market volatilities on Inverse Government and International Equity 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 Inverse Government with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Government and International Equity.
Diversification Opportunities for Inverse Government and International Equity
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Inverse and International is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and The International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The International Equity and Inverse Government 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 Inverse Government Long are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The International Equity has no effect on the direction of Inverse Government i.e., Inverse Government and International Equity go up and down completely randomly.
Pair Corralation between Inverse Government and International Equity
Assuming the 90 days horizon Inverse Government Long is expected to generate 1.29 times more return on investment than International Equity. However, Inverse Government is 1.29 times more volatile than The International Equity. It trades about -0.07 of its potential returns per unit of risk. The International Equity is currently generating about -0.15 per unit of risk. If you would invest 19,101 in Inverse Government Long on September 5, 2024 and sell it today you would lose (341.00) from holding Inverse Government Long or give up 1.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Inverse Government Long vs. The International Equity
Performance |
| Timeline |
| Inverse Government Long |
| The International Equity |
Inverse Government and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Government and International Equity
The main advantage of trading using opposite Inverse Government and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government position performs unexpectedly, International Equity 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 International Equity will offset losses from the drop in International Equity's long position.| Inverse Government vs. Basic Materials Fund | Inverse Government vs. Basic Materials Fund | Inverse Government vs. Banking Fund Class | Inverse Government vs. Basic Materials Fund |
| International Equity vs. The Long Term | International Equity vs. Baillie Gifford International | International Equity vs. Baillie Gifford China | International Equity vs. The Global Alpha |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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