Correlation Between International Growth and International Equity
Can any of the company-specific risk be diversified away by investing in both International Growth 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 International Growth and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Growth Fund and International Equity Index, you can compare the effects of market volatilities on International Growth 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 International Growth with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Growth and International Equity.
Diversification Opportunities for International Growth and International Equity
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between International and International is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding International Growth Fund and International Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and International Growth 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 Growth Fund 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 International Equity has no effect on the direction of International Growth i.e., International Growth and International Equity go up and down completely randomly.
Pair Corralation between International Growth and International Equity
Assuming the 90 days horizon International Growth is expected to generate 1.4 times less return on investment than International Equity. In addition to that, International Growth is 1.1 times more volatile than International Equity Index. It trades about 0.03 of its total potential returns per unit of risk. International Equity Index is currently generating about 0.05 per unit of volatility. If you would invest 962.00 in International Equity Index on August 24, 2024 and sell it today you would earn a total of 195.00 from holding International Equity Index or generate 20.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Growth Fund vs. International Equity Index
Performance |
| Timeline |
| International Growth |
| International Equity |
International Growth and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Growth and International Equity
The main advantage of trading using opposite International Growth and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Growth 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.The idea behind International Growth Fund and International Equity Index 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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