Correlation Between Small Cap and International Equity
Can any of the company-specific risk be diversified away by investing in both Small Cap and International Equity 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 Small Cap and International Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Equity and International Equity Institutional, you can compare the effects of market volatilities on Small Cap and International Equity 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 Small Cap with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and International Equity.
Diversification Opportunities for Small Cap and International Equity
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and International is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and International Equity Instituti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and 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 Small Cap Equity are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Small Cap i.e., Small Cap and International Equity go up and down completely randomly.
Pair Corralation between Small Cap and International Equity
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.57 times more return on investment than International Equity. However, Small Cap is 1.57 times more volatile than International Equity Institutional. It trades about 0.14 of its potential returns per unit of risk. International Equity Institutional is currently generating about -0.06 per unit of risk. If you would invest 1,839 in Small Cap Equity on August 28, 2024 and sell it today you would earn a total of 206.00 from holding Small Cap Equity or generate 11.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. International Equity Instituti
Performance |
| Timeline |
| Small Cap Equity |
| International Equity |
Small Cap and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and International Equity
The main advantage of trading using opposite Small Cap and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, International Equity 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 International Equity will offset losses from the drop in International Equity's long position.| Small Cap vs. Franklin Government Money | Small Cap vs. Blackrock Funds Iii | Small Cap vs. Transamerica Funds | Small Cap vs. Massmutual Premier Funds |
| International Equity vs. Ab Global Risk | International Equity vs. Ab Global Bond | International Equity vs. Barings Global Floating | International Equity vs. Dodge Global Stock |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
Other Complementary Tools
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets |