Correlation Between First American and Smallcap World
Can any of the company-specific risk be diversified away by investing in both First American 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 First American and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First American Funds and Smallcap World Fund, you can compare the effects of market volatilities on First American 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 First American with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Smallcap World.
Diversification Opportunities for First American and Smallcap World
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Smallcap is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and First American 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 First American Funds 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 First American i.e., First American and Smallcap World go up and down completely randomly.
Pair Corralation between First American and Smallcap World
Assuming the 90 days horizon First American Funds is expected to generate 27.23 times more return on investment than Smallcap World. However, First American is 27.23 times more volatile than Smallcap World Fund. It trades about 0.05 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.07 per unit of risk. If you would invest 96.00 in First American Funds on September 3, 2024 and sell it today you would earn a total of 4.00 from holding First American Funds or generate 4.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First American Funds vs. Smallcap World Fund
Performance |
| Timeline |
| First American Funds |
| Smallcap World |
First American and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First American and Smallcap World
The main advantage of trading using opposite First American and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First American 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.| First American vs. Vanguard Total Stock | First American vs. Vanguard 500 Index | First American vs. Vanguard Total Stock | First American vs. Vanguard Total Stock |
| Smallcap World vs. First American Funds | Smallcap World vs. Wilmington Funds | Smallcap World vs. Blackrock Exchange Portfolio | Smallcap World vs. Dws Government Money |
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 Correlations module to find global opportunities by holding instruments from different markets.
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