Correlation Between Short-term Fund and International Equity

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

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

Diversification Opportunities for Short-term Fund and International Equity

-0.67

Correlation Coefficient

Short-term Fund  International Equity

Excellent diversification

The 3 months correlation between Short-term and International is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund Administrative and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Short-term Fund 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 Short Term Fund Administrative 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 Short-term Fund i.e., Short-term Fund and International Equity go up and down completely randomly.

Pair Corralation between Short-term Fund and International Equity

Assuming the 90 days horizon Short Term Fund Administrative is expected to generate 0.01 times more return on investment than International Equity. However, Short Term Fund Administrative is 195.51 times less risky than International Equity. It trades about 0.32 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.25 per unit of risk. If you would invest  966.00  in Short Term Fund Administrative on October 7, 2024 and sell it today you would earn a total of  2.00  from holding Short Term Fund Administrative or generate 0.21% return on investment over 90 days.

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

Short Term Fund Administrative  vs.  International Equity Portfolio

Short Term Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Fund Administrative are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short-term Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fundamental drivers 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 Short-term Fund and International Equity

The main advantage of trading using opposite Short-term Fund and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Fund 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 Short Term Fund Administrative 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.