Correlation Between International Smaller and Us Equity

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

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

Diversification Opportunities for International Smaller and Us Equity

-0.5

Correlation Coefficient

International Smaller  Us Equity

Very good diversification

The 3 months correlation between International and BGGKX is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding The International Smaller and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and International Smaller 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 Smaller are associated (or correlated) with Us Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of International Smaller i.e., International Smaller and Us Equity go up and down completely randomly.

Pair Corralation between International Smaller and Us Equity

Assuming the 90 days horizon The International Smaller is expected to under-perform the Us Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, The International Smaller is 1.19 times less risky than Us Equity. The mutual fund trades about -0.08 of its potential returns per unit of risk. The The Equity Growth is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,221  in The Equity Growth on September 5, 2024 and sell it today you would earn a total of  578.00  from holding The Equity Growth or generate 26.02% return on investment over 90 days.

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

The International Smaller  vs.  The Equity Growth

The International Smaller

Risk-Adjusted Performance

0 of 100

Very Weak

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

Equity Growth

Risk-Adjusted Performance

23 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Equity Growth are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Us Equity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Smaller and Us Equity

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

The idea behind The International Smaller and The Equity Growth 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.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.