Correlation Between International Equity and Global Concentrated
Can any of the company-specific risk be diversified away by investing in both International Equity and Global Concentrated 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 Global Concentrated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Fund and Global Centrated Portfolio, you can compare the effects of market volatilities on International Equity and Global Concentrated 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 Global Concentrated. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Global Concentrated.
Diversification Opportunities for International Equity and Global Concentrated
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between International and Global is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Fund and Global Centrated Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Centrated Por 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 Fund are associated (or correlated) with Global Concentrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Centrated Por has no effect on the direction of International Equity i.e., International Equity and Global Concentrated go up and down completely randomly.
Pair Corralation between International Equity and Global Concentrated
Assuming the 90 days horizon International Equity is expected to generate 2.26 times less return on investment than Global Concentrated. But when comparing it to its historical volatility, International Equity Fund is 1.17 times less risky than Global Concentrated. It trades about 0.05 of its potential returns per unit of risk. Global Centrated Portfolio is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,505 in Global Centrated Portfolio on August 24, 2024 and sell it today you would earn a total of 923.00 from holding Global Centrated Portfolio or generate 61.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Fund vs. Global Centrated Portfolio
Performance |
| Timeline |
| International Equity |
| Global Centrated Por |
International Equity and Global Concentrated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Global Concentrated
The main advantage of trading using opposite International Equity and Global Concentrated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Global Concentrated 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 Global Concentrated will offset losses from the drop in Global Concentrated's long position.The idea behind International Equity Fund and Global Centrated Portfolio 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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