Correlation Between International Opportunity and Frontier Markets

Can any of the company-specific risk be diversified away by investing in both International Opportunity and Frontier Markets 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 Frontier Markets 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 Frontier Markets Portfolio, you can compare the effects of market volatilities on International Opportunity and Frontier Markets 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 Frontier Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Opportunity and Frontier Markets.

Diversification Opportunities for International Opportunity and Frontier Markets

-0.07

Correlation Coefficient

International Opportunity  Frontier Markets

Good diversification

The 3 months correlation between International and Frontier is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding International Opportunity Port and Frontier Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Markets Por 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 Frontier Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Markets Por has no effect on the direction of International Opportunity i.e., International Opportunity and Frontier Markets go up and down completely randomly.

Pair Corralation between International Opportunity and Frontier Markets

Assuming the 90 days horizon International Opportunity Portfolio is expected to generate 2.15 times more return on investment than Frontier Markets. However, International Opportunity is 2.15 times more volatile than Frontier Markets Portfolio. It trades about 0.11 of its potential returns per unit of risk. Frontier Markets Portfolio is currently generating about -0.01 per unit of risk. If you would invest  2,694  in International Opportunity Portfolio on September 17, 2024 and sell it today you would earn a total of  184.00  from holding International Opportunity Portfolio or generate 6.83% return on investment over 90 days.

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

International Opportunity Port  vs.  Frontier Markets Portfolio

International Opportunity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Opportunity Portfolio are ranked lower than 8 (%) 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.

Frontier Markets Por

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontier Markets Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Frontier Markets 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 Frontier Markets

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

The idea behind International Opportunity Portfolio and Frontier Markets 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.