Correlation Between Stock Index and International Equities

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

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

Diversification Opportunities for Stock Index and International Equities

0.95

Correlation Coefficient

Stock Index  International Equities

Almost no diversification

The 3 months correlation between Stock and International is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index 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 Stock Index 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 Stock Index 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 Stock Index i.e., Stock Index and International Equities go up and down completely randomly.

Pair Corralation between Stock Index and International Equities

Assuming the 90 days horizon Stock Index Fund is expected to generate 1.14 times more return on investment than International Equities. However, Stock Index is 1.14 times more volatile than International Equities Index. It trades about 0.1 of its potential returns per unit of risk. International Equities Index is currently generating about 0.09 per unit of risk. If you would invest  4,101  in Stock Index Fund on April 25, 2025 and sell it today you would earn a total of  2,188  from holding Stock Index Fund or generate 53.35% return on investment over 90 days.

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

Stock Index Fund  vs.  International Equities Index

Stock Index Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stock Index Fund are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Stock Index showed solid returns over the last few months and may actually be approaching a breakup point.

International Equities

Risk-Adjusted Performance

Solid

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

Pair Trading with Stock Index and International Equities

The main advantage of trading using opposite Stock Index and International Equities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stock Index 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 Stock Index 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.