Correlation Between International Advantage and International Opportunity

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

Diversification Opportunities for International Advantage and International Opportunity

0.58

Correlation Coefficient

International Advantage  International Opportunity

Very weak diversification

The 3 months correlation between International and International is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding International Advantage Portfo 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 Advantage 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 Advantage Portfolio 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 Advantage i.e., International Advantage and International Opportunity go up and down completely randomly.

Pair Corralation between International Advantage and International Opportunity

Assuming the 90 days horizon International Advantage Portfolio is expected to generate 1.0 times more return on investment than International Opportunity. However, International Advantage Portfolio is 1.0 times less risky than International Opportunity. It trades about 0.04 of its potential returns per unit of risk. International Opportunity Portfolio is currently generating about -0.05 per unit of risk. If you would invest  2,329  in International Advantage Portfolio on September 23, 2024 and sell it today you would earn a total of  14.00  from holding International Advantage Portfolio or generate 0.6% return on investment over 90 days.

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

International Advantage Portfo  vs.  International Opportunity Port

International Advantage

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Opportunity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in International Opportunity Portfolio are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. 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 Advantage and International Opportunity

The main advantage of trading using opposite International Advantage and International Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Advantage 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 Advantage Portfolio 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.