Correlation Between International Equity and Midcap Value

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

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

Diversification Opportunities for International Equity and Midcap Value

0.95

Correlation Coefficient

International Equity  Midcap Value

Almost no diversification

The 3 months correlation between International and Midcap is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Midcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Value 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 Index are associated (or correlated) with Midcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Value has no effect on the direction of International Equity i.e., International Equity and Midcap Value go up and down completely randomly.

Pair Corralation between International Equity and Midcap Value

Assuming the 90 days horizon International Equity Index is expected to generate 0.93 times more return on investment than Midcap Value. However, International Equity Index is 1.08 times less risky than Midcap Value. It trades about 0.07 of its potential returns per unit of risk. Midcap Value Fund is currently generating about 0.05 per unit of risk. If you would invest  975.00  in International Equity Index on January 31, 2024 and sell it today you would earn a total of  176.00  from holding International Equity Index or generate 18.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.7%
Values	Daily Returns

International Equity Index  vs.  Midcap Value Fund

International Equity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Equity Index are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, International Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Midcap Value

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Value Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Midcap Value 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 Midcap Value

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

The idea behind International Equity Index and Midcap Value 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.