Correlation Between International Stock and Global Stock

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

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

Diversification Opportunities for International Stock and Global Stock

0.53

Correlation Coefficient

International Stock  Global Stock

Very weak diversification

The 3 months correlation between International and Global is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding International Stock Fund and Global Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Stock and International Stock 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 International Stock Fund are associated (or correlated) with Global Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Stock has no effect on the direction of International Stock i.e., International Stock and Global Stock go up and down completely randomly.

Pair Corralation between International Stock and Global Stock

Assuming the 90 days horizon International Stock Fund is expected to under-perform the Global Stock. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Stock Fund is 1.18 times less risky than Global Stock. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Global Stock Fund is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,989  in Global Stock Fund on September 26, 2024 and sell it today you would lose (124.00) from holding Global Stock Fund or give up 6.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

International Stock Fund  vs.  Global Stock Fund

International Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Stock Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Global Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Stock Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 International Stock and Global Stock

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

The idea behind International Stock Fund and Global Stock 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.