Correlation Between International Equity and Baillie Gifford

Can any of the company-specific risk be diversified away by investing in both International Equity and Baillie Gifford 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 Equity and Baillie Gifford into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The International Equity and Baillie Gifford Eafe, you can compare the effects of market volatilities on International Equity and Baillie Gifford 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 Equity with a short position of Baillie Gifford. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Baillie Gifford.

Diversification Opportunities for International Equity and Baillie Gifford

0.9

Correlation Coefficient

International Equity  Baillie Gifford

Almost no diversification

The 3 months correlation between International and Baillie is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding The International Equity and Baillie Gifford Eafe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baillie Gifford Eafe and International Equity 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 The International Equity are associated (or correlated) with Baillie Gifford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baillie Gifford Eafe has no effect on the direction of International Equity i.e., International Equity and Baillie Gifford go up and down completely randomly.

Pair Corralation between International Equity and Baillie Gifford

Assuming the 90 days horizon The International Equity is expected to generate 0.7 times more return on investment than Baillie Gifford. However, The International Equity is 1.44 times less risky than Baillie Gifford. It trades about 0.04 of its potential returns per unit of risk. Baillie Gifford Eafe is currently generating about 0.0 per unit of risk. If you would invest  1,333  in The International Equity on December 2, 2024 and sell it today you would earn a total of  28.00  from holding The International Equity or generate 2.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

The International Equity  vs.  Baillie Gifford Eafe

The International Equity

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The International Equity are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, International Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Baillie Gifford Eafe

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baillie Gifford Eafe has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Baillie Gifford is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Equity and Baillie Gifford

The main advantage of trading using opposite International Equity and Baillie Gifford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Baillie Gifford 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 Baillie Gifford will offset losses from the drop in Baillie Gifford's long position.

The idea behind The International Equity and Baillie Gifford Eafe pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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.