Correlation Between Small Cap and Global Growth
Can any of the company-specific risk be diversified away by investing in both Small Cap and Global Growth 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 Growth 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 Growth Fund, you can compare the effects of market volatilities on Small Cap and Global Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Global Growth.
Diversification Opportunities for Small Cap and Global Growth
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Small and Global is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Global Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Growth 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Growth has no effect on the direction of Small Cap i.e., Small Cap and Global Growth go up and down completely randomly.
Pair Corralation between Small Cap and Global Growth
Assuming the 90 days horizon Small Cap Growth is expected to generate 1.04 times more return on investment than Global Growth. However, Small Cap is 1.04 times more volatile than Global Growth Fund. It trades about 0.25 of its potential returns per unit of risk. Global Growth Fund is currently generating about 0.13 per unit of risk. If you would invest 2,160 in Small Cap Growth on October 23, 2024 and sell it today you would earn a total of 97.00 from holding Small Cap Growth or generate 4.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. Global Growth Fund
Performance |
| Timeline |
| Small Cap Growth |
| Global Growth |
Small Cap and Global Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Global Growth
The main advantage of trading using opposite Small Cap and Global Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Global Growth 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 Growth will offset losses from the drop in Global Growth'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 Growth vs. Emerging Markets Fund | Global Growth vs. International Growth Fund | Global Growth vs. Heritage Fund Investor | Global Growth vs. Select Fund Investor |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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