Correlation Between Bond Fund and Smallcap World
Can any of the company-specific risk be diversified away by investing in both Bond Fund 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 Bond Fund and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bond Fund Of and Smallcap World Fund, you can compare the effects of market volatilities on Bond Fund 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 Bond Fund with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bond Fund and Smallcap World.
Diversification Opportunities for Bond Fund and Smallcap World
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bond and Smallcap is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Bond Fund Of and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Bond Fund 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 Bond Fund Of 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 Bond Fund i.e., Bond Fund and Smallcap World go up and down completely randomly.
Pair Corralation between Bond Fund and Smallcap World
Assuming the 90 days horizon Bond Fund is expected to generate 7.04 times less return on investment than Smallcap World. But when comparing it to its historical volatility, Bond Fund Of is 2.54 times less risky than Smallcap World. It trades about 0.06 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 6,838 in Smallcap World Fund on August 27, 2024 and sell it today you would earn a total of 217.00 from holding Smallcap World Fund or generate 3.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bond Fund Of vs. Smallcap World Fund
Performance |
| Timeline |
| Bond Fund |
| Smallcap World |
Bond Fund and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bond Fund and Smallcap World
The main advantage of trading using opposite Bond Fund and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bond Fund 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.| Bond Fund vs. American High Income | Bond Fund vs. Europacific Growth Fund | Bond Fund vs. Capital World Bond | Bond Fund vs. Growth Fund Of |
| Smallcap World vs. New World Fund | Smallcap World vs. Washington Mutual Investors | Smallcap World vs. Europacific Growth Fund | Smallcap World vs. New Perspective Fund |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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