Correlation Between International Equities and Broad Cap
Can any of the company-specific risk be diversified away by investing in both International Equities and Broad Cap 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 Equities and Broad Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equities Index and Broad Cap Value, you can compare the effects of market volatilities on International Equities and Broad Cap 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 Equities with a short position of Broad Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equities and Broad Cap.
Diversification Opportunities for International Equities and Broad Cap
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Broad is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding International Equities Index and Broad Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broad Cap Value and International Equities 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 Equities Index are associated (or correlated) with Broad Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broad Cap Value has no effect on the direction of International Equities i.e., International Equities and Broad Cap go up and down completely randomly.
Pair Corralation between International Equities and Broad Cap
Assuming the 90 days horizon International Equities Index is expected to under-perform the Broad Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Equities Index is 1.05 times less risky than Broad Cap. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Broad Cap Value is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,526 in Broad Cap Value on August 26, 2024 and sell it today you would earn a total of 77.00 from holding Broad Cap Value or generate 5.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equities Index vs. Broad Cap Value
Performance |
| Timeline |
| International Equities |
| Broad Cap Value |
International Equities and Broad Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equities and Broad Cap
The main advantage of trading using opposite International Equities and Broad Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equities position performs unexpectedly, Broad Cap 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 Broad Cap will offset losses from the drop in Broad Cap's long position.| International Equities vs. Mid Cap Index | International Equities vs. Mid Cap Strategic | International Equities vs. Valic Company I | International Equities vs. Valic Company I |
| Broad Cap vs. Mid Cap Index | Broad Cap vs. Mid Cap Strategic | Broad Cap vs. Valic Company I | Broad Cap vs. Valic Company I |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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