Correlation Between Smallcap World and Large Cap
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Large Cap 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 Large Cap 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 Large Cap E, you can compare the effects of market volatilities on Smallcap World and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Large Cap.
Diversification Opportunities for Smallcap World and Large Cap
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and Large is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Smallcap World i.e., Smallcap World and Large Cap go up and down completely randomly.
Pair Corralation between Smallcap World and Large Cap
Assuming the 90 days horizon Smallcap World Fund is expected to generate 0.5 times more return on investment than Large Cap. However, Smallcap World Fund is 2.02 times less risky than Large Cap. It trades about -0.01 of its potential returns per unit of risk. Large Cap E is currently generating about -0.04 per unit of risk. If you would invest 6,947 in Smallcap World Fund on October 18, 2024 and sell it today you would lose (126.00) from holding Smallcap World Fund or give up 1.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Large Cap E
Performance |
| Timeline |
| Smallcap World |
| Large Cap E |
Smallcap World and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Large Cap
The main advantage of trading using opposite Smallcap World and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.| Smallcap World vs. The Hartford Growth | Smallcap World vs. T Rowe Price | Smallcap World vs. Stringer Growth Fund | Smallcap World vs. Lifestyle Ii Growth |
| Large Cap vs. Chartwell Short Duration | Large Cap vs. Old Westbury Short Term | Large Cap vs. Barings Active Short | Large Cap vs. Cmg Ultra Short |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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