Correlation Between Stock Index and Foreign Value
Can any of the company-specific risk be diversified away by investing in both Stock Index 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 Stock Index and Foreign Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stock Index Fund and Foreign Value Fund, you can compare the effects of market volatilities on Stock Index 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 Stock Index with a short position of Foreign Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Index and Foreign Value.
Diversification Opportunities for Stock Index and Foreign Value
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Stock and Foreign is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index Fund and Foreign Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Value and Stock Index 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 Stock Index Fund 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 Stock Index i.e., Stock Index and Foreign Value go up and down completely randomly.
Pair Corralation between Stock Index and Foreign Value
Assuming the 90 days horizon Stock Index Fund is expected to generate 1.15 times more return on investment than Foreign Value. However, Stock Index is 1.15 times more volatile than Foreign Value Fund. It trades about 0.18 of its potential returns per unit of risk. Foreign Value Fund is currently generating about -0.04 per unit of risk. If you would invest 5,870 in Stock Index Fund on August 31, 2024 and sell it today you would earn a total of 194.00 from holding Stock Index Fund or generate 3.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stock Index Fund vs. Foreign Value Fund
Performance |
| Timeline |
| Stock Index Fund |
| Foreign Value |
Stock Index and Foreign Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stock Index and Foreign Value
The main advantage of trading using opposite Stock Index and Foreign Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stock Index 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.| Stock Index vs. Tax Managed Large Cap | Stock Index vs. Fundamental Large Cap | Stock Index vs. Americafirst Large Cap | Stock Index vs. Qs Large Cap |
| Foreign Value vs. Delaware Healthcare Fund | Foreign Value vs. Hartford Healthcare Hls | Foreign Value vs. Highland Longshort Healthcare | Foreign Value vs. Alger Health Sciences |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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