Correlation Between Lsv Small and International Equity

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

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

Diversification Opportunities for Lsv Small and International Equity

0.4

Correlation Coefficient

Lsv Small  International Equity

Very weak diversification

The 3 months correlation between Lsv and International is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Lsv Small Cap and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Lsv Small 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 Lsv Small Cap 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 Lsv Small i.e., Lsv Small and International Equity go up and down completely randomly.

Pair Corralation between Lsv Small and International Equity

Assuming the 90 days horizon Lsv Small Cap is expected to generate 0.24 times more return on investment than International Equity. However, Lsv Small Cap is 4.19 times less risky than International Equity. It trades about -0.22 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.17 per unit of risk. If you would invest  2,053  in Lsv Small Cap on October 9, 2024 and sell it today you would lose (190.00) from holding Lsv Small Cap or give up 9.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

Lsv Small Cap  vs.  International Equity Portfolio

Lsv Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lsv Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lsv Small 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 Portfolio 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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Lsv Small and International Equity

The main advantage of trading using opposite Lsv Small and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lsv Small 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 Lsv Small Cap and International Equity Portfolio 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.