Correlation Between International Equities and International Government
Can any of the company-specific risk be diversified away by investing in both International Equities and International Government 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 International Government 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 International Government Bond, you can compare the effects of market volatilities on International Equities and International Government 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 International Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equities and International Government.
Diversification Opportunities for International Equities and International Government
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and International is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding International Equities Index and International Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Government 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 International Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Government has no effect on the direction of International Equities i.e., International Equities and International Government go up and down completely randomly.
Pair Corralation between International Equities and International Government
Assuming the 90 days horizon International Equities Index is expected to under-perform the International Government. In addition to that, International Equities is 2.24 times more volatile than International Government Bond. It trades about -0.12 of its total potential returns per unit of risk. International Government Bond is currently generating about 0.0 per unit of volatility. If you would invest 1,012 in International Government Bond on August 31, 2024 and sell it today you would earn a total of 0.00 from holding International Government Bond or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equities Index vs. International Government Bond
Performance |
| Timeline |
| International Equities |
| International Government |
International Equities and International Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equities and International Government
The main advantage of trading using opposite International Equities and International Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equities position performs unexpectedly, International Government 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 Government will offset losses from the drop in International Government's long position.| International Equities vs. Artisan Small Cap | International Equities vs. Ab Small Cap | International Equities vs. Growth Opportunities Fund | International Equities vs. Touchstone Small Cap |
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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