Correlation Between International Equity and Cutler Equity

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

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

Diversification Opportunities for International Equity and Cutler Equity

0.17

Correlation Coefficient

International Equity  Cutler Equity

Average diversification

The 3 months correlation between International and Cutler is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Cutler Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cutler Equity 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 Index are associated (or correlated) with Cutler Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cutler Equity has no effect on the direction of International Equity i.e., International Equity and Cutler Equity go up and down completely randomly.

Pair Corralation between International Equity and Cutler Equity

Assuming the 90 days horizon International Equity Index is expected to generate 0.65 times more return on investment than Cutler Equity. However, International Equity Index is 1.53 times less risky than Cutler Equity. It trades about -0.17 of its potential returns per unit of risk. Cutler Equity is currently generating about -0.35 per unit of risk. If you would invest  1,163  in International Equity Index on September 23, 2024 and sell it today you would lose (33.00) from holding International Equity Index or give up 2.84% of portfolio value over 90 days.

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

International Equity Index  vs.  Cutler Equity

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Cutler Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cutler Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Cutler Equity 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 Cutler Equity

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

The idea behind International Equity Index and Cutler Equity 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.