Correlation Between Diversified International and Blue Chip

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

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

Diversification Opportunities for Diversified International and Blue Chip

-0.24

Correlation Coefficient

Diversified International  Blue Chip

Very good diversification

The 3 months correlation between Diversified and Blue is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Diversified International Fund and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund and Diversified International 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 Diversified International Fund are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of Diversified International i.e., Diversified International and Blue Chip go up and down completely randomly.

Pair Corralation between Diversified International and Blue Chip

Assuming the 90 days horizon Diversified International Fund is expected to generate 0.93 times more return on investment than Blue Chip. However, Diversified International Fund is 1.07 times less risky than Blue Chip. It trades about 0.14 of its potential returns per unit of risk. Blue Chip Fund is currently generating about -0.08 per unit of risk. If you would invest  1,326  in Diversified International Fund on December 22, 2024 and sell it today you would earn a total of  107.00  from holding Diversified International Fund or generate 8.07% return on investment over 90 days.

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

Diversified International Fund  vs.  Blue Chip Fund

Diversified International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified International Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Diversified International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Blue Chip Fund

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Diversified International and Blue Chip

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

The idea behind Diversified International Fund and Blue Chip Fund 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.