Correlation Between Advantage Portfolio and International Equity

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

Diversification Opportunities for Advantage Portfolio and International Equity

-0.27

Correlation Coefficient

Advantage Portfolio  International Equity

Very good diversification

The 3 months correlation between Advantage and International is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Advantage Portfolio Class and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Advantage Portfolio i.e., Advantage Portfolio and International Equity go up and down completely randomly.

Pair Corralation between Advantage Portfolio and International Equity

Assuming the 90 days horizon Advantage Portfolio Class is expected to generate 0.46 times more return on investment than International Equity. However, Advantage Portfolio Class is 2.17 times less risky than International Equity. It trades about 0.25 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.13 per unit of risk. If you would invest  1,746  in Advantage Portfolio Class on October 25, 2024 and sell it today you would earn a total of  458.00  from holding Advantage Portfolio Class or generate 26.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Advantage Portfolio Class  vs.  International Equity Portfolio

Advantage Portfolio Class

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advantage Portfolio Class are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Advantage Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

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 essential indicators 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.

Pair Trading with Advantage Portfolio and International Equity

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

The idea behind Advantage Portfolio Class and International Equity 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.