Correlation Between Small-company Stock and International Equity
Can any of the company-specific risk be diversified away by investing in both Small-company Stock 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-company Stock 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 Company Stock Fund and International Equity Fund, you can compare the effects of market volatilities on Small-company Stock 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-company Stock with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-company Stock and International Equity.
Diversification Opportunities for Small-company Stock and International Equity
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small-company and International is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Small Company Stock Fund and International Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Small-company Stock 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 Company Stock Fund 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-company Stock i.e., Small-company Stock and International Equity go up and down completely randomly.
Pair Corralation between Small-company Stock and International Equity
Assuming the 90 days horizon Small Company Stock Fund is expected to generate 1.85 times more return on investment than International Equity. However, Small-company Stock is 1.85 times more volatile than International Equity Fund. It trades about 0.3 of its potential returns per unit of risk. International Equity Fund is currently generating about -0.04 per unit of risk. If you would invest 2,709 in Small Company Stock Fund on September 1, 2024 and sell it today you would earn a total of 265.00 from holding Small Company Stock Fund or generate 9.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Small Company Stock Fund vs. International Equity Fund
Performance |
| Timeline |
| Small-company Stock |
| International Equity |
Small-company Stock and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-company Stock and International Equity
The main advantage of trading using opposite Small-company Stock and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-company Stock 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-company Stock vs. Blackrock Inflation Protected | Small-company Stock vs. Fidelity Advisor 529 | Small-company Stock vs. American Funds Inflation | Small-company Stock vs. Ab Bond Inflation |
| International Equity vs. Homestead Rural America | International Equity vs. Small Company Stock Fund | International Equity vs. Stock Index Fund | International Equity vs. Homestead Funds |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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