Correlation Between Enhanced and International Equity

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

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

Diversification Opportunities for Enhanced and International Equity

0.45

Correlation Coefficient

Enhanced  International Equity

Very weak diversification

The 3 months correlation between Enhanced and International is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Enhanced Large Pany and International Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Enhanced 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 Enhanced Large Pany are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Enhanced i.e., Enhanced and International Equity go up and down completely randomly.

Pair Corralation between Enhanced and International Equity

Assuming the 90 days horizon Enhanced Large Pany is expected to under-perform the International Equity. In addition to that, Enhanced is 1.11 times more volatile than International Equity Fund. It trades about -0.07 of its total potential returns per unit of risk. International Equity Fund is currently generating about 0.05 per unit of volatility. If you would invest  1,003  in International Equity Fund on December 4, 2024 and sell it today you would earn a total of  21.00  from holding International Equity Fund or generate 2.09% return on investment over 90 days.

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

Enhanced Large Pany  vs.  International Equity Fund

Enhanced Large Pany

Risk-Adjusted Performance

Very Weak

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

International Equity

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Equity Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, International Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Enhanced and International Equity

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

The idea behind Enhanced Large Pany and International Equity Fund 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.