Correlation Between Multifactor and Tax-managed International

Can any of the company-specific risk be diversified away by investing in both Multifactor 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 Multifactor 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 Multifactor Equity Fund and Tax Managed International Equity, you can compare the effects of market volatilities on Multifactor 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 Multifactor with a short position of Tax-managed International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multifactor and Tax-managed International.

Diversification Opportunities for Multifactor and Tax-managed International

0.1

Correlation Coefficient

Multifactor  Tax-managed International

Average diversification

The 3 months correlation between Multifactor and Tax-managed is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Multifactor Equity Fund 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 Multifactor 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 Multifactor Equity Fund 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 Multifactor i.e., Multifactor and Tax-managed International go up and down completely randomly.

Pair Corralation between Multifactor and Tax-managed International

Assuming the 90 days horizon Multifactor Equity Fund is expected to under-perform the Tax-managed International. In addition to that, Multifactor is 1.27 times more volatile than Tax Managed International Equity. It trades about -0.07 of its total potential returns per unit of risk. Tax Managed International Equity is currently generating about 0.25 per unit of volatility. If you would invest  1,155  in Tax Managed International Equity on December 3, 2024 and sell it today you would earn a total of  38.00  from holding Tax Managed International Equity or generate 3.29% return on investment over 90 days.

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

Multifactor Equity Fund  vs.  Tax Managed International Equi

Multifactor Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Multifactor Equity Fund 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Tax-managed International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed International Equity are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-managed 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 Multifactor and Tax-managed International

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

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.