Correlation Between International Equity and Foreign Smaller

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

By analyzing existing cross correlation between International Equity Series and Foreign Smaller Panies, you can compare the effects of market volatilities on International Equity and Foreign Smaller 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 International Equity with a short position of Foreign Smaller. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Foreign Smaller.

Diversification Opportunities for International Equity and Foreign Smaller

0.92

Correlation Coefficient

International Equity  Foreign Smaller

Almost no diversification

The 3 months correlation between International and Foreign is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Series and Foreign Smaller Panies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Smaller Panies and International Equity 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 International Equity Series are associated (or correlated) with Foreign Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Smaller Panies has no effect on the direction of International Equity i.e., International Equity and Foreign Smaller go up and down completely randomly.

Pair Corralation between International Equity and Foreign Smaller

Assuming the 90 days horizon International Equity Series is expected to under-perform the Foreign Smaller. In addition to that, International Equity is 1.2 times more volatile than Foreign Smaller Panies. It trades about -0.27 of its total potential returns per unit of risk. Foreign Smaller Panies is currently generating about -0.26 per unit of volatility. If you would invest  1,834  in Foreign Smaller Panies on September 29, 2024 and sell it today you would lose (231.00) from holding Foreign Smaller Panies or give up 12.6% of portfolio value over 90 days.

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

International Equity Series  vs.  Foreign Smaller Panies

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Series 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 January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Foreign Smaller Panies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foreign Smaller Panies 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 indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with International Equity and Foreign Smaller

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

The idea behind International Equity Series and Foreign Smaller Panies 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.