Correlation Between Target Retirement and International Fund

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

By analyzing existing cross correlation between Target Retirement 2040 and International Fund R6, you can compare the effects of market volatilities on Target Retirement 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 Target Retirement with a short position of International Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and International Fund.

Diversification Opportunities for Target Retirement and International Fund

0.38

Correlation Coefficient

Target Retirement  International Fund

Weak diversification

The 3 months correlation between Target and International is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and International Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Fund and Target Retirement 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 Target Retirement 2040 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 Target Retirement i.e., Target Retirement and International Fund go up and down completely randomly.

Pair Corralation between Target Retirement and International Fund

Assuming the 90 days horizon Target Retirement is expected to generate 22.28 times less return on investment than International Fund. But when comparing it to its historical volatility, Target Retirement 2040 is 1.37 times less risky than International Fund. It trades about 0.01 of its potential returns per unit of risk. International Fund R6 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,617  in International Fund R6 on December 30, 2024 and sell it today you would earn a total of  208.00  from holding International Fund R6 or generate 7.95% return on investment over 90 days.

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

Target Retirement 2040  vs.  International Fund R6

Target Retirement 2040

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target Retirement 2040 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Target Retirement 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

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Fund R6 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, International Fund may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Target Retirement and International Fund

The main advantage of trading using opposite Target Retirement and International Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement 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 Target Retirement 2040 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.