Correlation Between International Equity and Materials Portfolio

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

By analyzing existing cross correlation between International Equity Fund and Materials Portfolio Fidelity, you can compare the effects of market volatilities on International Equity and Materials Portfolio 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 Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Materials Portfolio.

Diversification Opportunities for International Equity and Materials Portfolio

0.74

Correlation Coefficient

International Equity  Materials Portfolio

Poor diversification

The 3 months correlation between International and Materials is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Fund and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Fund are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of International Equity i.e., International Equity and Materials Portfolio go up and down completely randomly.

Pair Corralation between International Equity and Materials Portfolio

Assuming the 90 days horizon International Equity Fund is expected to generate 0.71 times more return on investment than Materials Portfolio. However, International Equity Fund is 1.41 times less risky than Materials Portfolio. It trades about 0.02 of its potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about -0.01 per unit of risk. If you would invest  1,211  in International Equity Fund on October 4, 2024 and sell it today you would earn a total of  94.00  from holding International Equity Fund or generate 7.76% return on investment over 90 days.

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

International Equity Fund  vs.  Materials Portfolio Fidelity

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with International Equity and Materials Portfolio

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

The idea behind International Equity Fund and Materials Portfolio Fidelity 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.