Correlation Between International Equity and International Fixed

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

By analyzing existing cross correlation between International Equity Portfolio and International Fixed Income, you can compare the effects of market volatilities on International Equity and International Fixed 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 International Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and International Fixed.

Diversification Opportunities for International Equity and International Fixed

0.26

Correlation Coefficient

International Equity  International Fixed

Modest diversification

The 3 months correlation between International and International is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and International Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Fixed 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 Portfolio are associated (or correlated) with International Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Fixed has no effect on the direction of International Equity i.e., International Equity and International Fixed go up and down completely randomly.

Pair Corralation between International Equity and International Fixed

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the International Fixed. In addition to that, International Equity is 2.71 times more volatile than International Fixed Income. It trades about -0.05 of its total potential returns per unit of risk. International Fixed Income is currently generating about -0.07 per unit of volatility. If you would invest  688.00  in International Fixed Income on September 16, 2024 and sell it today you would lose (11.00) from holding International Fixed Income or give up 1.6% of portfolio value over 90 days.

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

International Equity Portfolio  vs.  International Fixed Income

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Fixed Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, International Fixed 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 Equity and International Fixed

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

The idea behind International Equity Portfolio and International Fixed Income 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.