Correlation Between Small Cap and Focused International
Can any of the company-specific risk be diversified away by investing in both Small Cap and Focused International 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 Focused International 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 Focused International Growth, you can compare the effects of market volatilities on Small Cap and Focused International 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 Focused International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Focused International.
Diversification Opportunities for Small Cap and Focused International
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Focused is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Focused International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focused International 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 Focused International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focused International has no effect on the direction of Small Cap i.e., Small Cap and Focused International go up and down completely randomly.
Pair Corralation between Small Cap and Focused International
Assuming the 90 days horizon Small Cap Growth is expected to generate 1.23 times more return on investment than Focused International. However, Small Cap is 1.23 times more volatile than Focused International Growth. It trades about 0.05 of its potential returns per unit of risk. Focused International Growth is currently generating about 0.02 per unit of risk. If you would invest 2,041 in Small Cap Growth on November 28, 2024 and sell it today you would earn a total of 199.00 from holding Small Cap Growth or generate 9.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. Focused International Growth
Performance |
| Timeline |
| Small Cap Growth |
| Focused International |
Small Cap and Focused International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Focused International
The main advantage of trading using opposite Small Cap and Focused International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Focused International 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 Focused International will offset losses from the drop in Focused International's long position.| Small Cap vs. American Century Small | Small Cap vs. Small Cap Growth | Small Cap vs. Small Cap Growth | Small Cap vs. Small Cap Growth |
| Focused International vs. Hartford Moderate Allocation | Focused International vs. Enhanced Large Pany | Focused International vs. Upright Assets Allocation | Focused International vs. Dodge Cox Stock |
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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