Correlation Between Small Cap and International Fund
Can any of the company-specific risk be diversified away by investing in both Small Cap and International Fund 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 Fund 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 Fund International, you can compare the effects of market volatilities on Small Cap and International Fund 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 Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and International Fund.
Diversification Opportunities for Small Cap and International Fund
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Small and International is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and International Fund Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Fund 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 Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Fund has no effect on the direction of Small Cap i.e., Small Cap and International Fund go up and down completely randomly.
Pair Corralation between Small Cap and International Fund
Assuming the 90 days horizon Small Cap Equity is expected to generate 2.0 times more return on investment than International Fund. However, Small Cap is 2.0 times more volatile than International Fund International. It trades about 0.08 of its potential returns per unit of risk. International Fund International is currently generating about -0.01 per unit of risk. If you would invest 3,412 in Small Cap Equity on August 25, 2024 and sell it today you would earn a total of 163.00 from holding Small Cap Equity or generate 4.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. International Fund Internation
Performance |
| Timeline |
| Small Cap Equity |
| International Fund |
Small Cap and International Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and International Fund
The main advantage of trading using opposite Small Cap and International Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, International Fund 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 Fund will offset losses from the drop in International Fund's long position.| Small Cap vs. Large Cap Growth | Small Cap vs. Lazard International Strategic | Small Cap vs. Equity Income Fund | Small Cap vs. Large Cap E |
| International Fund vs. Pimco Moditiesplus Strategy | International Fund vs. The Brown Capital | International Fund vs. Goldman Sachs International | International Fund vs. Cohen Steers Real |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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