Correlation Between International Equity and Foreign Smaller
Can any of the company-specific risk be diversified away by investing in both International Equity and Foreign Smaller 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 Foreign Smaller into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Series and Foreign Smaller Panies, you can compare the effects of market volatilities on International Equity and Foreign Smaller 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 Foreign Smaller. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Foreign Smaller.
Diversification Opportunities for International Equity and Foreign Smaller
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between International and Foreign is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Series and Foreign Smaller Panies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Smaller Panies 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 Series are associated (or correlated) with Foreign Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Smaller Panies has no effect on the direction of International Equity i.e., International Equity and Foreign Smaller go up and down completely randomly.
Pair Corralation between International Equity and Foreign Smaller
Assuming the 90 days horizon International Equity Series is expected to generate 1.16 times more return on investment than Foreign Smaller. However, International Equity is 1.16 times more volatile than Foreign Smaller Panies. It trades about -0.14 of its potential returns per unit of risk. Foreign Smaller Panies is currently generating about -0.25 per unit of risk. If you would invest 1,270 in International Equity Series on August 29, 2024 and sell it today you would lose (33.00) from holding International Equity Series or give up 2.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Series vs. Foreign Smaller Panies
Performance |
| Timeline |
| International Equity |
| Foreign Smaller Panies |
International Equity and Foreign Smaller Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Foreign Smaller
The main advantage of trading using opposite International Equity and Foreign Smaller positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Foreign Smaller 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 Foreign Smaller will offset losses from the drop in Foreign Smaller's long position.| International Equity vs. Foreign Smaller Panies | International Equity vs. International Equity Series | International Equity vs. T Rowe Price | International Equity vs. Franklin Growth Allocation |
| Foreign Smaller vs. Goldman Sachs International | Foreign Smaller vs. Goldman Sachs International | Foreign Smaller vs. HUMANA INC | Foreign Smaller vs. Aquagold International |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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