Correlation Between Smallcap World and New Economy
Can any of the company-specific risk be diversified away by investing in both Smallcap World and New Economy 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 New Economy 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 New Economy Fund, you can compare the effects of market volatilities on Smallcap World and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and New Economy.
Diversification Opportunities for Smallcap World and New Economy
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and New is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Smallcap World i.e., Smallcap World and New Economy go up and down completely randomly.
Pair Corralation between Smallcap World and New Economy
Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.02 times more return on investment than New Economy. However, Smallcap World is 1.02 times more volatile than New Economy Fund. It trades about 0.23 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.17 per unit of risk. If you would invest 6,946 in Smallcap World Fund on September 2, 2024 and sell it today you would earn a total of 300.00 from holding Smallcap World Fund or generate 4.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. New Economy Fund
Performance |
| Timeline |
| Smallcap World |
| New Economy Fund |
Smallcap World and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and New Economy
The main advantage of trading using opposite Smallcap World and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.| Smallcap World vs. Income Fund Of | Smallcap World vs. New World Fund | Smallcap World vs. American Mutual Fund | Smallcap World vs. American Mutual Fund |
| New Economy vs. Aqr Risk Balanced Modities | New Economy vs. Metropolitan West High | New Economy vs. Ab High Income | New Economy vs. Ab Global Risk |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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