Correlation Between International Equity and Smallcap Growth
Can any of the company-specific risk be diversified away by investing in both International Equity and Smallcap Growth 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 Growth 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 Growth Fund, you can compare the effects of market volatilities on International Equity and Smallcap Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Smallcap Growth.
Diversification Opportunities for International Equity and Smallcap Growth
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Smallcap is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Growth 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of International Equity i.e., International Equity and Smallcap Growth go up and down completely randomly.
Pair Corralation between International Equity and Smallcap Growth
Assuming the 90 days horizon International Equity Index is expected to under-perform the Smallcap Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Equity Index is 1.74 times less risky than Smallcap Growth. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Smallcap Growth Fund is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,418 in Smallcap Growth Fund on September 2, 2024 and sell it today you would earn a total of 125.00 from holding Smallcap Growth Fund or generate 8.82% 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 Growth Fund
Performance |
| Timeline |
| International Equity |
| Smallcap Growth |
International Equity and Smallcap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Smallcap Growth
The main advantage of trading using opposite International Equity and Smallcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Smallcap Growth 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 Growth will offset losses from the drop in Smallcap Growth's long position.The idea behind International Equity Index and Smallcap Growth Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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