Correlation Between Advantage Portfolio and International Advantage

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

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

Diversification Opportunities for Advantage Portfolio and International Advantage

0.52

Correlation Coefficient

Advantage Portfolio  International Advantage

Very weak diversification

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

Pair Corralation between Advantage Portfolio and International Advantage

Assuming the 90 days horizon Advantage Portfolio Class is expected to under-perform the International Advantage. In addition to that, Advantage Portfolio is 1.51 times more volatile than International Advantage Portfolio. It trades about -0.02 of its total potential returns per unit of risk. International Advantage Portfolio is currently generating about 0.08 per unit of volatility. If you would invest  2,429  in International Advantage Portfolio on December 25, 2024 and sell it today you would earn a total of  132.00  from holding International Advantage Portfolio or generate 5.43% return on investment over 90 days.

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

Advantage Portfolio Class  vs.  International Advantage Portfo

Advantage Portfolio Class

Risk-Adjusted Performance

Very Weak

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

International Advantage

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Advantage Portfolio are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, International Advantage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Advantage Portfolio and International Advantage

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

The idea behind Advantage Portfolio Class and International Advantage 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.