Correlation Between International Opportunity and International Advantage

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

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

Diversification Opportunities for International Opportunity and International Advantage

0.67

Correlation Coefficient

International Opportunity  International Advantage

Poor diversification

The 3 months correlation between International and International is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding International Opportunity Port and International Advantage Portfo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Advantage and International Opportunity 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 Opportunity Portfolio are associated (or correlated) with International Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Advantage has no effect on the direction of International Opportunity i.e., International Opportunity and International Advantage go up and down completely randomly.

Pair Corralation between International Opportunity and International Advantage

Assuming the 90 days horizon International Opportunity Portfolio is expected to generate 1.01 times more return on investment than International Advantage. However, International Opportunity is 1.01 times more volatile than International Advantage Portfolio. It trades about 0.15 of its potential returns per unit of risk. International Advantage Portfolio is currently generating about 0.08 per unit of risk. If you would invest  2,609  in International Opportunity Portfolio on September 5, 2024 and sell it today you would earn a total of  261.00  from holding International Opportunity Portfolio or generate 10.0% return on investment over 90 days.

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

International Opportunity Port  vs.  International Advantage Portfo

International Opportunity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Opportunity Portfolio 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 Opportunity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

International Advantage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Advantage Portfolio are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, International Advantage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Opportunity and International Advantage

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

The idea behind International Opportunity Portfolio and International Advantage Portfolio 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.