Correlation Between Growth Opportunities and International Equity

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

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

Diversification Opportunities for Growth Opportunities and International Equity

-0.38

Correlation Coefficient

Growth Opportunities  International Equity

Very good diversification

The 3 months correlation between GROWTH and International is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Growth Opportunities Fund and International Equity Instituti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Growth Opportunities 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 Growth Opportunities Fund are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Growth Opportunities i.e., Growth Opportunities and International Equity go up and down completely randomly.

Pair Corralation between Growth Opportunities and International Equity

Assuming the 90 days horizon Growth Opportunities Fund is expected to generate 1.22 times more return on investment than International Equity. However, Growth Opportunities is 1.22 times more volatile than International Equity Institutional. It trades about 0.19 of its potential returns per unit of risk. International Equity Institutional is currently generating about -0.03 per unit of risk. If you would invest  5,187  in Growth Opportunities Fund on August 31, 2024 and sell it today you would earn a total of  629.00  from holding Growth Opportunities Fund or generate 12.13% return on investment over 90 days.

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

Growth Opportunities Fund  vs.  International Equity Instituti

Growth Opportunities

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Opportunities Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Growth Opportunities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Growth Opportunities and International Equity

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

The idea behind Growth Opportunities Fund and International Equity Institutional 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.