Correlation Between New Economy and Smallcap World
Can any of the company-specific risk be diversified away by investing in both New Economy 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 New Economy and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Economy Fund and Smallcap World Fund, you can compare the effects of market volatilities on New Economy 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 New Economy with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Smallcap World.
Diversification Opportunities for New Economy and Smallcap World
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and Smallcap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and New Economy 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 New Economy Fund 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 New Economy i.e., New Economy and Smallcap World go up and down completely randomly.
Pair Corralation between New Economy and Smallcap World
Assuming the 90 days horizon New Economy is expected to generate 2.6 times less return on investment than Smallcap World. In addition to that, New Economy is 1.13 times more volatile than Smallcap World Fund. It trades about 0.01 of its total potential returns per unit of risk. Smallcap World Fund is currently generating about 0.04 per unit of volatility. If you would invest 6,875 in Smallcap World Fund on August 24, 2024 and sell it today you would earn a total of 46.00 from holding Smallcap World Fund or generate 0.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
New Economy Fund vs. Smallcap World Fund
Performance |
| Timeline |
| New Economy Fund |
| Smallcap World |
New Economy and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and Smallcap World
The main advantage of trading using opposite New Economy and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy 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.| New Economy vs. Absolute Convertible Arbitrage | New Economy vs. Teton Vertible Securities | New Economy vs. Fidelity Vertible Securities | New Economy vs. Lord Abbett Vertible |
| Smallcap World vs. Invesco Government Fund | Smallcap World vs. Blackrock Government Bond | Smallcap World vs. Government Securities Fund | Smallcap World vs. Us Government Securities |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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