Correlation Between Global Fixed and Active International

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

By analyzing existing cross correlation between Global Fixed Income and Active International Allocation, you can compare the effects of market volatilities on Global Fixed and Active International 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 Global Fixed with a short position of Active International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Fixed and Active International.

Diversification Opportunities for Global Fixed and Active International

0.82

Correlation Coefficient

Global Fixed  Active International

Very poor diversification

The 3 months correlation between Global and Active is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Global Fixed Income and Active International Allocatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Active International and Global Fixed 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 Global Fixed Income are associated (or correlated) with Active International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Active International has no effect on the direction of Global Fixed i.e., Global Fixed and Active International go up and down completely randomly.

Pair Corralation between Global Fixed and Active International

Assuming the 90 days horizon Global Fixed is expected to generate 9.37 times less return on investment than Active International. But when comparing it to its historical volatility, Global Fixed Income is 3.92 times less risky than Active International. It trades about 0.11 of its potential returns per unit of risk. Active International Allocation is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,519  in Active International Allocation on February 19, 2024 and sell it today you would earn a total of  210.00  from holding Active International Allocation or generate 13.82% return on investment over 90 days.

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

Global Fixed Income  vs.  Active International Allocatio

Global Fixed Income

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Fixed Income are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Global Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Active International

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Active International Allocation are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Active International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Fixed and Active International

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

The idea behind Global Fixed Income and Active International Allocation 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.