Correlation Between International Equity and Global Opportunity

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

Diversification Opportunities for International Equity and Global Opportunity

0.77

Correlation Coefficient

International Equity  Global Opportunity

Poor diversification

The 3 months correlation between International and Global is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Global Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Opportunity 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 Global Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Opportunity has no effect on the direction of International Equity i.e., International Equity and Global Opportunity go up and down completely randomly.

Pair Corralation between International Equity and Global Opportunity

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Global Opportunity. In addition to that, International Equity is 2.48 times more volatile than Global Opportunity Portfolio. It trades about -0.13 of its total potential returns per unit of risk. Global Opportunity Portfolio is currently generating about -0.03 per unit of volatility. If you would invest  3,528  in Global Opportunity Portfolio on October 26, 2024 and sell it today you would lose (98.00) from holding Global Opportunity Portfolio or give up 2.78% of portfolio value over 90 days.

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

International Equity Portfolio  vs.  Global Opportunity Portfolio

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.

Global Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind International Equity Portfolio and Global 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.