Correlation Between Foreign Smaller and International Equity

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

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

Diversification Opportunities for Foreign Smaller and International Equity

0.96

Correlation Coefficient

Foreign Smaller  International Equity

Almost no diversification

The 3 months correlation between Foreign and International is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Smaller Panies and International Equity Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Foreign Smaller 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 Foreign Smaller Panies 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 Foreign Smaller i.e., Foreign Smaller and International Equity go up and down completely randomly.

Pair Corralation between Foreign Smaller and International Equity

Assuming the 90 days horizon Foreign Smaller Panies is expected to generate 0.85 times more return on investment than International Equity. However, Foreign Smaller Panies is 1.17 times less risky than International Equity. It trades about -0.08 of its potential returns per unit of risk. International Equity Series is currently generating about -0.07 per unit of risk. If you would invest  1,845  in Foreign Smaller Panies on September 30, 2024 and sell it today you would lose (242.00) from holding Foreign Smaller Panies or give up 13.12% of portfolio value over 90 days.

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

Foreign Smaller Panies  vs.  International Equity Series

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.

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.

Pair Trading with Foreign Smaller and International Equity

The main advantage of trading using opposite Foreign Smaller and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foreign Smaller 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 Foreign Smaller Panies and International Equity Series 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.