Correlation Between International Equities and Foreign Value
Can any of the company-specific risk be diversified away by investing in both International Equities and Foreign Value 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 Foreign Value 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 Foreign Value Fund, you can compare the effects of market volatilities on International Equities and Foreign Value 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 Foreign Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equities and Foreign Value.
Diversification Opportunities for International Equities and Foreign Value
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between International and Foreign is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding International Equities Index and Foreign Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign 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 Foreign Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Value has no effect on the direction of International Equities i.e., International Equities and Foreign Value go up and down completely randomly.
Pair Corralation between International Equities and Foreign Value
Assuming the 90 days horizon International Equities is expected to generate 1.46 times less return on investment than Foreign Value. In addition to that, International Equities is 1.05 times more volatile than Foreign Value Fund. It trades about 0.15 of its total potential returns per unit of risk. Foreign Value Fund is currently generating about 0.23 per unit of volatility. If you would invest 1,051 in Foreign Value Fund on October 20, 2024 and sell it today you would earn a total of 29.00 from holding Foreign Value Fund or generate 2.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equities Index vs. Foreign Value Fund
Performance |
| Timeline |
| International Equities |
| Foreign Value |
International Equities and Foreign Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equities and Foreign Value
The main advantage of trading using opposite International Equities and Foreign Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equities position performs unexpectedly, Foreign Value 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 Value will offset losses from the drop in Foreign Value'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 |
| Foreign Value vs. Mid Cap Index | Foreign Value vs. Mid Cap Strategic | Foreign Value vs. Valic Company I | Foreign Value 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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