Correlation Between Intermediate-term and International Growth

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

By analyzing existing cross correlation between Intermediate Term Tax Free Bond and International Growth Fund, you can compare the effects of market volatilities on Intermediate-term and International Growth 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 Intermediate-term with a short position of International Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and International Growth.

Diversification Opportunities for Intermediate-term and International Growth

0.61

Correlation Coefficient

Intermediate-term  International Growth

Poor diversification

The 3 months correlation between Intermediate-term and International is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and International Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Growth and Intermediate-term 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 Intermediate Term Tax Free Bond are associated (or correlated) with International Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Growth has no effect on the direction of Intermediate-term i.e., Intermediate-term and International Growth go up and down completely randomly.

Pair Corralation between Intermediate-term and International Growth

Assuming the 90 days horizon Intermediate Term Tax Free Bond is expected to generate 0.22 times more return on investment than International Growth. However, Intermediate Term Tax Free Bond is 4.59 times less risky than International Growth. It trades about 0.03 of its potential returns per unit of risk. International Growth Fund is currently generating about -0.05 per unit of risk. If you would invest  1,080  in Intermediate Term Tax Free Bond on September 3, 2024 and sell it today you would earn a total of  4.00  from holding Intermediate Term Tax Free Bond or generate 0.37% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  International Growth Fund

Intermediate Term Tax

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Tax Free Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Intermediate-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

International Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Intermediate-term and International Growth

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

The idea behind Intermediate Term Tax Free Bond and International Growth Fund 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.