Correlation Between Smallcap World and Short Duration
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Short Duration 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 Smallcap World and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap World Fund and Short Duration Inflation, you can compare the effects of market volatilities on Smallcap World and Short Duration 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 Smallcap World with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Short Duration.
Diversification Opportunities for Smallcap World and Short Duration
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smallcap and Short is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Short Duration Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Inflation and Smallcap World 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 Smallcap World Fund are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Inflation has no effect on the direction of Smallcap World i.e., Smallcap World and Short Duration go up and down completely randomly.
Pair Corralation between Smallcap World and Short Duration
Assuming the 90 days horizon Smallcap World Fund is expected to under-perform the Short Duration. In addition to that, Smallcap World is 6.31 times more volatile than Short Duration Inflation. It trades about -0.36 of its total potential returns per unit of risk. Short Duration Inflation is currently generating about -0.07 per unit of volatility. If you would invest 1,032 in Short Duration Inflation on October 11, 2024 and sell it today you would lose (2.00) from holding Short Duration Inflation or give up 0.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Short Duration Inflation
Performance |
| Timeline |
| Smallcap World |
| Short Duration Inflation |
Smallcap World and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Short Duration
The main advantage of trading using opposite Smallcap World and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Short Duration 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 Short Duration will offset losses from the drop in Short Duration's long position.| Smallcap World vs. Baird Midcap Fund | Smallcap World vs. Rational Defensive Growth | Smallcap World vs. Small Pany Growth | Smallcap World vs. Needham Aggressive Growth |
| Short Duration vs. Us Vector Equity | Short Duration vs. Artisan Select Equity | Short Duration vs. Smallcap World Fund | Short Duration vs. Doubleline Core Fixed |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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