Correlation Between Omni Small-cap and Capital World
Can any of the company-specific risk be diversified away by investing in both Omni Small-cap and Capital 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 Omni Small-cap and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Omni Small Cap Value and Capital World Growth, you can compare the effects of market volatilities on Omni Small-cap and Capital 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 Omni Small-cap with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Omni Small-cap and Capital World.
Diversification Opportunities for Omni Small-cap and Capital World
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Omni and Capital is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Omni Small Cap Value and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Omni 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 Omni Small Cap Value are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Omni Small-cap i.e., Omni Small-cap and Capital World go up and down completely randomly.
Pair Corralation between Omni Small-cap and Capital World
Assuming the 90 days horizon Omni Small-cap is expected to generate 1.04 times less return on investment than Capital World. In addition to that, Omni Small-cap is 1.95 times more volatile than Capital World Growth. It trades about 0.04 of its total potential returns per unit of risk. Capital World Growth is currently generating about 0.08 per unit of volatility. If you would invest 5,221 in Capital World Growth on August 27, 2024 and sell it today you would earn a total of 1,514 from holding Capital World Growth or generate 29.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Omni Small Cap Value vs. Capital World Growth
Performance |
| Timeline |
| Omni Small Cap |
| Capital World Growth |
Omni Small-cap and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Omni Small-cap and Capital World
The main advantage of trading using opposite Omni Small-cap and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Omni Small-cap position performs unexpectedly, Capital 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 Capital World will offset losses from the drop in Capital World's long position.| Omni Small-cap vs. Rational Strategic Allocation | Omni Small-cap vs. Pace Large Growth | Omni Small-cap vs. Siit Large Cap | Omni Small-cap vs. Tax Managed Large Cap |
| Capital World vs. Aqr Long Short Equity | Capital World vs. Siit Emerging Markets | Capital World vs. Ep Emerging Markets | Capital World vs. Western Asset Diversified |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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