Correlation Between International Value and Global Opportunity

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

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

Diversification Opportunities for International Value and Global Opportunity

0.4

Correlation Coefficient

International Value  Global Opportunity

Very weak diversification

The 3 months correlation between International and Global is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding International Value Fund and Global Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Opportunity and International Value 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 Value Fund are associated (or correlated) with Global Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Opportunity has no effect on the direction of International Value i.e., International Value and Global Opportunity go up and down completely randomly.

Pair Corralation between International Value and Global Opportunity

Assuming the 90 days horizon International Value Fund is expected to under-perform the Global Opportunity. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Value Fund is 1.55 times less risky than Global Opportunity. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Global Opportunity Portfolio is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  3,553  in Global Opportunity Portfolio on October 11, 2024 and sell it today you would lose (255.00) from holding Global Opportunity Portfolio or give up 7.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

International Value Fund  vs.  Global Opportunity Portfolio

International Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Value Fund 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.

Global Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Opportunity Portfolio 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 International Value and Global Opportunity

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

The idea behind International Value Fund and Global Opportunity 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.