Correlation Between MSCI ACWI and Small Cap
Can any of the company-specific risk be diversified away by investing in both MSCI ACWI and Small Cap 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 MSCI ACWI and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MSCI ACWI exAUCONSUMER and Small Cap Core, you can compare the effects of market volatilities on MSCI ACWI and Small Cap 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 MSCI ACWI with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSCI ACWI and Small Cap.
Diversification Opportunities for MSCI ACWI and Small Cap
Poor diversification
The 3 months correlation between MSCI and Small is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding MSCI ACWI exAUCONSUMER and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and MSCI ACWI 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 MSCI ACWI exAUCONSUMER are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of MSCI ACWI i.e., MSCI ACWI and Small Cap go up and down completely randomly.
Pair Corralation between MSCI ACWI and Small Cap
Assuming the 90 days horizon MSCI ACWI is expected to generate 1.9 times less return on investment than Small Cap. But when comparing it to its historical volatility, MSCI ACWI exAUCONSUMER is 2.54 times less risky than Small Cap. It trades about 0.07 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,158 in Small Cap Core on August 27, 2024 and sell it today you would earn a total of 328.00 from holding Small Cap Core or generate 28.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MSCI ACWI exAUCONSUMER vs. Small Cap Core
Performance |
| Timeline |
| MSCI ACWI exAUCONSUMER |
| Small Cap Core |
MSCI ACWI and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MSCI ACWI and Small Cap
The main advantage of trading using opposite MSCI ACWI and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSCI ACWI position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| MSCI ACWI vs. Harrow Health 8625 | MSCI ACWI vs. Babcock Wilcox Enterprises, | MSCI ACWI vs. Babcock Wilcox Enterprises | MSCI ACWI vs. TRINL |
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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