Correlation Between International Developed and Select Equity

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

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

Diversification Opportunities for International Developed and Select Equity

-0.51

Correlation Coefficient

International Developed  Select Equity

Excellent diversification

The 3 months correlation between International and Select is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding International Developed Market and Select Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Equity and International Developed 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 Developed Markets are associated (or correlated) with Select Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Equity has no effect on the direction of International Developed i.e., International Developed and Select Equity go up and down completely randomly.

Pair Corralation between International Developed and Select Equity

Assuming the 90 days horizon International Developed Markets is expected to under-perform the Select Equity. In addition to that, International Developed is 1.02 times more volatile than Select Equity Fund. It trades about -0.03 of its total potential returns per unit of risk. Select Equity Fund is currently generating about 0.24 per unit of volatility. If you would invest  1,863  in Select Equity Fund on September 5, 2024 and sell it today you would earn a total of  218.00  from holding Select Equity Fund or generate 11.7% return on investment over 90 days.

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

International Developed Market  vs.  Select Equity Fund

International Developed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Select Equity

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select Equity Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Select Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with International Developed and Select Equity

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

The idea behind International Developed Markets and Select Equity Fund 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.