Correlation Between Small Cap and Global Bond
Can any of the company-specific risk be diversified away by investing in both Small Cap and Global Bond 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 Global Bond 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 Global Bond Fund, you can compare the effects of market volatilities on Small Cap and Global Bond 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 Global Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Global Bond.
Diversification Opportunities for Small Cap and Global Bond
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Global is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Global Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Bond Fund 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 Global Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Bond Fund has no effect on the direction of Small Cap i.e., Small Cap and Global Bond go up and down completely randomly.
Pair Corralation between Small Cap and Global Bond
Assuming the 90 days horizon Small Cap Growth is expected to generate 4.44 times more return on investment than Global Bond. However, Small Cap is 4.44 times more volatile than Global Bond Fund. It trades about 0.02 of its potential returns per unit of risk. Global Bond Fund is currently generating about 0.03 per unit of risk. If you would invest 1,747 in Small Cap Growth on January 12, 2025 and sell it today you would earn a total of 99.00 from holding Small Cap Growth or generate 5.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Small Cap Growth vs. Global Bond Fund
Performance |
| Timeline |
| Small Cap Growth |
| Global Bond Fund |
Small Cap and Global Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Global Bond
The main advantage of trading using opposite Small Cap and Global Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Global Bond 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 Global Bond will offset losses from the drop in Global Bond's long position.| Small Cap vs. Focused Dynamic Growth | Small Cap vs. Heritage Fund Investor | Small Cap vs. Emerging Markets Fund | Small Cap vs. Small Cap Value |
| Global Bond vs. Money Market Obligations | Global Bond vs. Ubs Money Series | Global Bond vs. Putnam Money Market | Global Bond vs. Ab Government Exchange |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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