Correlation Between Limited Term and International Equities

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

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

Diversification Opportunities for Limited Term and International Equities

0.58

Correlation Coefficient

Limited Term  International Equities

Very weak diversification

The 3 months correlation between LIMITED and International is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Limited Term Tax and International Equities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equities and Limited 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 Limited Term Tax are associated (or correlated) with International Equities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equities has no effect on the direction of Limited Term i.e., Limited Term and International Equities go up and down completely randomly.

Pair Corralation between Limited Term and International Equities

Assuming the 90 days horizon Limited Term Tax is expected to generate 0.17 times more return on investment than International Equities. However, Limited Term Tax is 5.86 times less risky than International Equities. It trades about 0.03 of its potential returns per unit of risk. International Equities Index is currently generating about -0.03 per unit of risk. If you would invest  1,540  in Limited Term Tax on September 5, 2024 and sell it today you would earn a total of  4.00  from holding Limited Term Tax or generate 0.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Limited Term Tax  vs.  International Equities Index

Limited Term Tax

Risk-Adjusted Performance

2 of 100

Weak

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

International Equities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Limited Term and International Equities

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

The idea behind Limited Term Tax and International Equities Index 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.