Correlation Between American Funds and Smallcap World
Can any of the company-specific risk be diversified away by investing in both American Funds and Smallcap World 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 American Funds and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Fundamental and Smallcap World Fund, you can compare the effects of market volatilities on American Funds and Smallcap World 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 American Funds with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Smallcap World.
Diversification Opportunities for American Funds and Smallcap World
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and SMALLCAP is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Fundamental and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and American Funds 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 American Funds Fundamental are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of American Funds i.e., American Funds and Smallcap World go up and down completely randomly.
Pair Corralation between American Funds and Smallcap World
Assuming the 90 days horizon American Funds Fundamental is expected to generate 0.92 times more return on investment than Smallcap World. However, American Funds Fundamental is 1.09 times less risky than Smallcap World. It trades about 0.11 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.05 per unit of risk. If you would invest 5,734 in American Funds Fundamental on September 2, 2024 and sell it today you would earn a total of 3,122 from holding American Funds Fundamental or generate 54.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Fundamental vs. Smallcap World Fund
Performance |
| Timeline |
| American Funds Funda |
| Smallcap World |
American Funds and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Smallcap World
The main advantage of trading using opposite American Funds and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Smallcap World 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 World will offset losses from the drop in Smallcap World's long position.| American Funds vs. Small Cap Stock | American Funds vs. Sentinel Small Pany | American Funds vs. Blackrock Sm Cap | American Funds vs. Delaware Limited Term Diversified |
| Smallcap World vs. American Funds Fundamental | Smallcap World vs. Amcap Fund Class | Smallcap World vs. New World Fund | Smallcap World vs. Washington Mutual Investors |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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