Correlation Between Large Cap and International Fund

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

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

Diversification Opportunities for Large Cap and International Fund

0.29

Correlation Coefficient

Large Cap  International Fund

Modest diversification

The 3 months correlation between Large and International is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth and International Fund Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Fund and Large Cap 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 Large Cap Growth are associated (or correlated) with International Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Fund has no effect on the direction of Large Cap i.e., Large Cap and International Fund go up and down completely randomly.

Pair Corralation between Large Cap and International Fund

Assuming the 90 days horizon Large Cap Growth is expected to generate 1.3 times more return on investment than International Fund. However, Large Cap is 1.3 times more volatile than International Fund International. It trades about 0.18 of its potential returns per unit of risk. International Fund International is currently generating about 0.01 per unit of risk. If you would invest  3,422  in Large Cap Growth on August 31, 2024 and sell it today you would earn a total of  348.00  from holding Large Cap Growth or generate 10.17% return on investment over 90 days.

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

Large Cap Growth  vs.  International Fund Internation

Large Cap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

International Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Large Cap and International Fund

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

The idea behind Large Cap Growth and International Fund International 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.