Correlation Between World Energy and Small Cap
Can any of the company-specific risk be diversified away by investing in both World Energy and Small Cap 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 World Energy and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Energy Fund and Small Cap Stock, you can compare the effects of market volatilities on World Energy and Small Cap 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 World Energy with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Small Cap.
Diversification Opportunities for World Energy and Small Cap
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between World and Small is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and World Energy 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 World Energy Fund are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of World Energy i.e., World Energy and Small Cap go up and down completely randomly.
Pair Corralation between World Energy and Small Cap
Assuming the 90 days horizon World Energy Fund is expected to generate 1.01 times more return on investment than Small Cap. However, World Energy is 1.01 times more volatile than Small Cap Stock. It trades about 0.04 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.04 per unit of risk. If you would invest 1,218 in World Energy Fund on September 3, 2024 and sell it today you would earn a total of 324.00 from holding World Energy Fund or generate 26.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
World Energy Fund vs. Small Cap Stock
Performance |
| Timeline |
| World Energy |
| Small Cap Stock |
World Energy and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with World Energy and Small Cap
The main advantage of trading using opposite World Energy and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| World Energy vs. John Hancock Funds | World Energy vs. Jp Morgan Smartretirement | World Energy vs. T Rowe Price | World Energy vs. T Rowe Price |
| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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