Correlation Between International Equity and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both International Equity and Smallcap Value 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 International Equity and Smallcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Index and Smallcap Value Fund, you can compare the effects of market volatilities on International Equity and Smallcap Value 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 International Equity with a short position of Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Smallcap Value.
Diversification Opportunities for International Equity and Smallcap Value
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Smallcap is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value and International Equity 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 International Equity Index are associated (or correlated) with Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of International Equity i.e., International Equity and Smallcap Value go up and down completely randomly.
Pair Corralation between International Equity and Smallcap Value
Assuming the 90 days horizon International Equity is expected to generate 2.14 times less return on investment than Smallcap Value. But when comparing it to its historical volatility, International Equity Index is 1.49 times less risky than Smallcap Value. It trades about 0.04 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,041 in Smallcap Value Fund on August 31, 2024 and sell it today you would earn a total of 252.00 from holding Smallcap Value Fund or generate 24.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Index vs. Smallcap Value Fund
Performance |
| Timeline |
| International Equity |
| Smallcap Value |
International Equity and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Smallcap Value
The main advantage of trading using opposite International Equity and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Smallcap Value 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 Value will offset losses from the drop in Smallcap Value's long position.| International Equity vs. Vanguard Total International | International Equity vs. Vanguard Developed Markets | International Equity vs. Vanguard Developed Markets | International Equity vs. HUMANA INC |
| Smallcap Value vs. Vanguard Small Cap Value | Smallcap Value vs. Vanguard Small Cap Value | Smallcap Value vs. Us Targeted Value | Smallcap Value vs. Undiscovered Managers Behavioral |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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