Correlation Between Multi Asset and Tax-managed International

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

By analyzing existing cross correlation between Multi Asset Growth Strategy and Tax Managed International Equity, you can compare the effects of market volatilities on Multi Asset and Tax-managed International 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 Multi Asset with a short position of Tax-managed International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multi Asset and Tax-managed International.

Diversification Opportunities for Multi Asset and Tax-managed International

0.82

Correlation Coefficient

Multi Asset  Tax-managed International

Very poor diversification

The 3 months correlation between Multi and Tax-managed is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Multi Asset Growth Strategy and Tax Managed International Equi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax-managed International and Multi Asset 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 Multi Asset Growth Strategy are associated (or correlated) with Tax-managed International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax-managed International has no effect on the direction of Multi Asset i.e., Multi Asset and Tax-managed International go up and down completely randomly.

Pair Corralation between Multi Asset and Tax-managed International

Assuming the 90 days horizon Multi Asset is expected to generate 4.24 times less return on investment than Tax-managed International. But when comparing it to its historical volatility, Multi Asset Growth Strategy is 1.65 times less risky than Tax-managed International. It trades about 0.06 of its potential returns per unit of risk. Tax Managed International Equity is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,135  in Tax Managed International Equity on December 27, 2024 and sell it today you would earn a total of  81.00  from holding Tax Managed International Equity or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Multi Asset Growth Strategy  vs.  Tax Managed International Equi

Multi Asset Growth

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Asset Growth Strategy are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Multi Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax-managed International

Risk-Adjusted Performance

Good

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

Pair Trading with Multi Asset and Tax-managed International

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

The idea behind Multi Asset Growth Strategy and Tax Managed International 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..