Correlation Between International Equity and Value Equity

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

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

Diversification Opportunities for International Equity and Value Equity

-0.52

Correlation Coefficient

International Equity  Value Equity

Excellent diversification

The 3 months correlation between International and Value is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Value Equity Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Institu 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 Index are associated (or correlated) with Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Institu has no effect on the direction of International Equity i.e., International Equity and Value Equity go up and down completely randomly.

Pair Corralation between International Equity and Value Equity

Assuming the 90 days horizon International Equity Index is expected to under-perform the Value Equity. In addition to that, International Equity is 1.25 times more volatile than Value Equity Institutional. It trades about -0.06 of its total potential returns per unit of risk. Value Equity Institutional is currently generating about 0.19 per unit of volatility. If you would invest  2,017  in Value Equity Institutional on September 2, 2024 and sell it today you would earn a total of  163.00  from holding Value Equity Institutional or generate 8.08% return on investment over 90 days.

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

International Equity Index  vs.  Value Equity Institutional

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Value Equity Institu

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Value Equity Institutional are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Value Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with International Equity and Value Equity

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

The idea behind International Equity Index and Value Equity Institutional 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.