Correlation Between Income Fund and Smallcap World
Can any of the company-specific risk be diversified away by investing in both Income Fund and Smallcap World 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 Income Fund and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Of and Smallcap World Fund, you can compare the effects of market volatilities on Income Fund and Smallcap World 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 Income Fund with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Smallcap World.
Diversification Opportunities for Income Fund and Smallcap World
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Income and Smallcap is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Income Fund 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 Income Fund Of are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Income Fund i.e., Income Fund and Smallcap World go up and down completely randomly.
Pair Corralation between Income Fund and Smallcap World
Assuming the 90 days horizon Income Fund is expected to generate 3.45 times less return on investment than Smallcap World. But when comparing it to its historical volatility, Income Fund Of is 2.01 times less risky than Smallcap World. It trades about 0.1 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 7,244 in Smallcap World Fund on August 28, 2024 and sell it today you would earn a total of 233.00 from holding Smallcap World Fund or generate 3.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund Of vs. Smallcap World Fund
Performance |
| Timeline |
| Income Fund |
| Smallcap World |
Income Fund and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Smallcap World
The main advantage of trading using opposite Income Fund and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Smallcap World 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 Smallcap World will offset losses from the drop in Smallcap World's long position.| Income Fund vs. Goldman Sachs Financial | Income Fund vs. Gabelli Global Financial | Income Fund vs. Mesirow Financial Small | Income Fund vs. Vanguard Financials Index |
| Smallcap World vs. Income Fund Of | Smallcap World vs. New World Fund | Smallcap World vs. American Mutual Fund | Smallcap World vs. American Mutual Fund |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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