Correlation Between Small Cap and International Value
Can any of the company-specific risk be diversified away by investing in both Small Cap and International 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 Small Cap and International Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Growth and International Value Fund, you can compare the effects of market volatilities on Small Cap and International 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 Small Cap with a short position of International Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and International Value.
Diversification Opportunities for Small Cap and International Value
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and International is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and International Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Value and Small Cap 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 Small Cap Growth are associated (or correlated) with International Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Value has no effect on the direction of Small Cap i.e., Small Cap and International Value go up and down completely randomly.
Pair Corralation between Small Cap and International Value
Assuming the 90 days horizon Small Cap Growth is expected to generate 1.35 times more return on investment than International Value. However, Small Cap is 1.35 times more volatile than International Value Fund. It trades about 0.07 of its potential returns per unit of risk. International Value Fund is currently generating about 0.06 per unit of risk. If you would invest 1,593 in Small Cap Growth on August 26, 2024 and sell it today you would earn a total of 687.00 from holding Small Cap Growth or generate 43.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. International Value Fund
Performance |
| Timeline |
| Small Cap Growth |
| International Value |
Small Cap and International Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and International Value
The main advantage of trading using opposite Small Cap and International Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, International 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 International Value will offset losses from the drop in International Value's long position.| Small Cap vs. Small Cap Growth | Small Cap vs. Small Cap Growth | Small Cap vs. Baron International Growth |
| International Value vs. Focused International Growth | International Value vs. Small Cap Growth | International Value vs. Disciplined Growth Fund | International Value vs. Large Pany Value |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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