Correlation Between Growth Portfolio and International Opportunity

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

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

Diversification Opportunities for Growth Portfolio and International Opportunity

0.56

Correlation Coefficient

Growth Portfolio  International Opportunity

Very weak diversification

The 3 months correlation between Growth and International is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Growth Portfolio Class and International Opportunity Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Opportunity and Growth 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 Growth Portfolio Class 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 Growth Portfolio i.e., Growth Portfolio and International Opportunity go up and down completely randomly.

Pair Corralation between Growth Portfolio and International Opportunity

Assuming the 90 days horizon Growth Portfolio Class is expected to generate 1.57 times more return on investment than International Opportunity. However, Growth Portfolio is 1.57 times more volatile than International Opportunity Portfolio. It trades about 0.38 of its potential returns per unit of risk. International Opportunity Portfolio is currently generating about 0.14 per unit of risk. If you would invest  3,586  in Growth Portfolio Class on September 3, 2024 and sell it today you would earn a total of  1,666  from holding Growth Portfolio Class or generate 46.46% return on investment over 90 days.

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

Growth Portfolio Class  vs.  International Opportunity Port

Growth Portfolio Class

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Portfolio Class are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Growth Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

International Opportunity

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Opportunity Portfolio are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, International Opportunity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Growth Portfolio and International Opportunity

The main advantage of trading using opposite Growth Portfolio and International Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Portfolio 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 Growth Portfolio Class 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..