Correlation Between Defensive Market and International Equity

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

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

Diversification Opportunities for Defensive Market and International Equity

0.24

Correlation Coefficient

Defensive Market  International Equity

Modest diversification

The 3 months correlation between Defensive and International is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Defensive Market Strategies and International Equity Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Defensive Market 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 Defensive Market Strategies 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 Defensive Market i.e., Defensive Market and International Equity go up and down completely randomly.

Pair Corralation between Defensive Market and International Equity

Assuming the 90 days horizon Defensive Market Strategies is expected to generate 0.77 times more return on investment than International Equity. However, Defensive Market Strategies is 1.3 times less risky than International Equity. It trades about -0.04 of its potential returns per unit of risk. International Equity Investor is currently generating about -0.1 per unit of risk. If you would invest  1,248  in Defensive Market Strategies on September 17, 2024 and sell it today you would lose (32.00) from holding Defensive Market Strategies or give up 2.56% of portfolio value over 90 days.

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

Defensive Market Strategies  vs.  International Equity Investor

Defensive Market Str

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Defensive Market Strategies has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Defensive Market 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

0 of 100

Very Weak

Over the last 90 days International Equity Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 Defensive Market and International Equity

The main advantage of trading using opposite Defensive Market and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Defensive Market 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 Defensive Market Strategies and International Equity Investor 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.