Correlation Between Intermediate-term and International Fund

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

By analyzing existing cross correlation between Intermediate Term Bond Fund and International Fund R6, you can compare the effects of market volatilities on Intermediate-term and International Fund 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 Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and International Fund.

Diversification Opportunities for Intermediate-term and International Fund

0.65

Correlation Coefficient

Intermediate-term  International Fund

Poor diversification

The 3 months correlation between Intermediate-term and International is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Bond Fund and International Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Fund 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 Bond Fund are associated (or correlated) with International Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Fund has no effect on the direction of Intermediate-term i.e., Intermediate-term and International Fund go up and down completely randomly.

Pair Corralation between Intermediate-term and International Fund

Assuming the 90 days horizon Intermediate Term Bond Fund is expected to under-perform the International Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Intermediate Term Bond Fund is 2.91 times less risky than International Fund. The mutual fund trades about -0.08 of its potential returns per unit of risk. The International Fund R6 is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,898  in International Fund R6 on September 5, 2024 and sell it today you would lose (28.00) from holding International Fund R6 or give up 0.97% of portfolio value over 90 days.

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

Intermediate Term Bond Fund  vs.  International Fund R6

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Fund R6 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, International Fund 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 Fund

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

The idea behind Intermediate Term Bond Fund and International Fund R6 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.