Correlation Between International Equity and Commodityrealreturn

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

Diversification Opportunities for International Equity and Commodityrealreturn

0.52

Correlation Coefficient

International Equity  Commodityrealreturn

Very weak diversification

The 3 months correlation between International and Commodityrealreturn is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Commodityrealreturn Strategy F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commodityrealreturn 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 Commodityrealreturn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commodityrealreturn has no effect on the direction of International Equity i.e., International Equity and Commodityrealreturn go up and down completely randomly.

Pair Corralation between International Equity and Commodityrealreturn

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Commodityrealreturn. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Equity Portfolio is 6.46 times less risky than Commodityrealreturn. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Commodityrealreturn Strategy Fund is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,135  in Commodityrealreturn Strategy Fund on October 5, 2024 and sell it today you would earn a total of  120.00  from holding Commodityrealreturn Strategy Fund or generate 10.57% return on investment over 90 days.

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

International Equity Portfolio  vs.  Commodityrealreturn Strategy F

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 fundamental drivers 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.

Commodityrealreturn

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commodityrealreturn Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Commodityrealreturn 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 Commodityrealreturn

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

The idea behind International Equity Portfolio and Commodityrealreturn Strategy Fund 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..