Correlation Between International Portfolio and Large Cap

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

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

Diversification Opportunities for International Portfolio and Large Cap

0.74

Correlation Coefficient

International Portfolio  Large Cap

Poor diversification

The 3 months correlation between International and Large is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding International Portfolio Intern and Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and International Portfolio 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 Portfolio International are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Growth has no effect on the direction of International Portfolio i.e., International Portfolio and Large Cap go up and down completely randomly.

Pair Corralation between International Portfolio and Large Cap

Assuming the 90 days horizon International Portfolio International is expected to generate 0.29 times more return on investment than Large Cap. However, International Portfolio International is 3.51 times less risky than Large Cap. It trades about 0.01 of its potential returns per unit of risk. Large Cap Growth is currently generating about -0.12 per unit of risk. If you would invest  1,672  in International Portfolio International on November 29, 2024 and sell it today you would earn a total of  10.00  from holding International Portfolio International or generate 0.6% return on investment over 90 days.

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

International Portfolio Intern  vs.  Large Cap Growth

International Portfolio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in International Portfolio International are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, International Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Growth 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 essential indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with International Portfolio and Large Cap

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

The idea behind International Portfolio International and Large Cap 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.