Correlation Between Washington Mutual and Smallcap World
Can any of the company-specific risk be diversified away by investing in both Washington Mutual 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 Washington Mutual and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Washington Mutual Investors and Smallcap World Fund, you can compare the effects of market volatilities on Washington Mutual 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 Washington Mutual with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Washington Mutual and Smallcap World.
Diversification Opportunities for Washington Mutual and Smallcap World
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Washington and Smallcap is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Washington Mutual Investors and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Washington Mutual 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 Washington Mutual Investors 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 Washington Mutual i.e., Washington Mutual and Smallcap World go up and down completely randomly.
Pair Corralation between Washington Mutual and Smallcap World
Assuming the 90 days horizon Washington Mutual Investors is expected to generate 0.76 times more return on investment than Smallcap World. However, Washington Mutual Investors is 1.32 times less risky than Smallcap World. It trades about 0.12 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.04 per unit of risk. If you would invest 5,717 in Washington Mutual Investors on September 1, 2024 and sell it today you would earn a total of 894.00 from holding Washington Mutual Investors or generate 15.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Washington Mutual Investors vs. Smallcap World Fund
Performance |
| Timeline |
| Washington Mutual |
| Smallcap World |
Washington Mutual and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Washington Mutual and Smallcap World
The main advantage of trading using opposite Washington Mutual and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Mutual 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.The idea behind Washington Mutual Investors and Smallcap World Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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