Correlation Between International Value and International Opportunity

Can any of the company-specific risk be diversified away by investing in both International Value and International 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 International 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 International Opportunity Portfolio, you can compare the effects of market volatilities on International Value and International 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 International Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Value and International Opportunity.

Diversification Opportunities for International Value and International Opportunity

0.22

Correlation Coefficient

International Value  International Opportunity

Modest diversification

The 3 months correlation between International and International is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding International Value Fund and International Opportunity Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International 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 International Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Opportunity has no effect on the direction of International Value i.e., International Value and International Opportunity go up and down completely randomly.

Pair Corralation between International Value and International Opportunity

Assuming the 90 days horizon International Value Fund is expected to under-perform the International Opportunity. In addition to that, International Value is 1.3 times more volatile than International Opportunity Portfolio. It trades about -0.23 of its total potential returns per unit of risk. International Opportunity Portfolio is currently generating about -0.2 per unit of volatility. If you would invest  2,876  in International Opportunity Portfolio on October 11, 2024 and sell it today you would lose (104.00) from holding International Opportunity Portfolio or give up 3.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

International Value Fund  vs.  International Opportunity Port

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.

International Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with International Value and International Opportunity

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

The idea behind International Value Fund and International 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.