Correlation Between Brandes International and Brandes Small

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

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

Diversification Opportunities for Brandes International and Brandes Small

-0.03

Correlation Coefficient

Brandes International  Brandes Small

Good diversification

The 3 months correlation between Brandes and BRANDES is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Brandes International Equity and Brandes Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandes Small Cap and Brandes International 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 Brandes International Equity are associated (or correlated) with Brandes Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandes Small Cap has no effect on the direction of Brandes International i.e., Brandes International and Brandes Small go up and down completely randomly.

Pair Corralation between Brandes International and Brandes Small

Assuming the 90 days horizon Brandes International is expected to generate 1.09 times less return on investment than Brandes Small. But when comparing it to its historical volatility, Brandes International Equity is 1.52 times less risky than Brandes Small. It trades about 0.12 of its potential returns per unit of risk. Brandes Small Cap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,264  in Brandes Small Cap on December 3, 2024 and sell it today you would earn a total of  409.00  from holding Brandes Small Cap or generate 32.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Brandes International Equity  vs.  Brandes Small Cap

Brandes International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brandes International Equity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Brandes International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Brandes Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brandes Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Brandes International and Brandes Small

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

The idea behind Brandes International Equity and Brandes Small Cap 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.