Correlation Between Foreign Value and International Equities

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

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

Diversification Opportunities for Foreign Value and International Equities

0.97

Correlation Coefficient

Foreign Value  International Equities

Almost no diversification

The 3 months correlation between Foreign and International is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Value Fund and International Equities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equities and Foreign Value 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 Foreign Value Fund are associated (or correlated) with International Equities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equities has no effect on the direction of Foreign Value i.e., Foreign Value and International Equities go up and down completely randomly.

Pair Corralation between Foreign Value and International Equities

Assuming the 90 days horizon Foreign Value Fund is expected to generate 0.89 times more return on investment than International Equities. However, Foreign Value Fund is 1.12 times less risky than International Equities. It trades about -0.02 of its potential returns per unit of risk. International Equities Index is currently generating about -0.04 per unit of risk. If you would invest  1,111  in Foreign Value Fund on September 12, 2024 and sell it today you would lose (12.00) from holding Foreign Value Fund or give up 1.08% of portfolio value over 90 days.

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

Foreign Value Fund  vs.  International Equities Index

Foreign Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Equities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Foreign Value and International Equities

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

The idea behind Foreign Value Fund and International Equities Index 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.