Correlation Between Balanced Strategy and Focused International

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

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

Diversification Opportunities for Balanced Strategy and Focused International

0.86

Correlation Coefficient

Balanced Strategy  Focused International

Very poor diversification

The 3 months correlation between Balanced and Focused is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Strategy Fund and Focused International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focused International and Balanced Strategy 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 Balanced Strategy Fund are associated (or correlated) with Focused International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focused International has no effect on the direction of Balanced Strategy i.e., Balanced Strategy and Focused International go up and down completely randomly.

Pair Corralation between Balanced Strategy and Focused International

Assuming the 90 days horizon Balanced Strategy is expected to generate 10.6 times less return on investment than Focused International. But when comparing it to its historical volatility, Balanced Strategy Fund is 1.92 times less risky than Focused International. It trades about 0.01 of its potential returns per unit of risk. Focused International Growth is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,674  in Focused International Growth on December 22, 2024 and sell it today you would earn a total of  46.00  from holding Focused International Growth or generate 2.75% return on investment over 90 days.

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

Balanced Strategy Fund  vs.  Focused International Growth

Balanced Strategy

Risk-Adjusted Performance

Very Weak

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

Focused International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Focused International Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Focused International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Balanced Strategy and Focused International

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

The idea behind Balanced Strategy Fund and Focused International Growth 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.