Correlation Between International Government and Foreign Value
Can any of the company-specific risk be diversified away by investing in both International Government 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 Government 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 Government Bond and Foreign Value Fund, you can compare the effects of market volatilities on International Government 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 Government with a short position of Foreign Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Government and Foreign Value.
Diversification Opportunities for International Government and Foreign Value
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and Foreign is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding International Government Bond 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 Government 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 Government Bond 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 Government i.e., International Government and Foreign Value go up and down completely randomly.
Pair Corralation between International Government and Foreign Value
Assuming the 90 days horizon International Government Bond is expected to under-perform the Foreign Value. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Government Bond is 2.31 times less risky than Foreign Value. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Foreign Value Fund is currently generating about 0.23 of returns per unit of risk over similar time horizon. 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 | Strong |
| Accuracy | 95.0% |
| Values | Daily Returns |
International Government Bond vs. Foreign Value Fund
Performance |
| Timeline |
| International Government |
| Foreign Value |
International Government and Foreign Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Government and Foreign Value
The main advantage of trading using opposite International Government and Foreign Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Government 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 Government vs. Mid Cap Index | International Government vs. Mid Cap Strategic | International Government vs. Valic Company I | International Government vs. Small Cap Special |
| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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