Correlation Between International Equity and Causeway International

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

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

Diversification Opportunities for International Equity and Causeway International

0.94

Correlation Coefficient

International Equity  Causeway International

Almost no diversification

The 3 months correlation between International and Causeway is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Causeway International Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Causeway International and International Equity 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 Equity Portfolio are associated (or correlated) with Causeway International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Causeway International has no effect on the direction of International Equity i.e., International Equity and Causeway International go up and down completely randomly.

Pair Corralation between International Equity and Causeway International

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Causeway International. In addition to that, International Equity is 1.11 times more volatile than Causeway International Value. It trades about -0.04 of its total potential returns per unit of risk. Causeway International Value is currently generating about -0.03 per unit of volatility. If you would invest  2,118  in Causeway International Value on September 13, 2024 and sell it today you would lose (42.00) from holding Causeway International Value or give up 1.98% of portfolio value over 90 days.

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

International Equity Portfolio  vs.  Causeway International Value

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 fairly strong fundamental drivers, International Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Causeway International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Causeway International Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Causeway International 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 Equity and Causeway International

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

The idea behind International Equity Portfolio and Causeway International Value 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.