Correlation Between Smallcap World and American Funds
Can any of the company-specific risk be diversified away by investing in both Smallcap World and American Funds 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 Smallcap World and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap World Fund and American Funds Developing, you can compare the effects of market volatilities on Smallcap World and American Funds 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 Smallcap World with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and American Funds.
Diversification Opportunities for Smallcap World and American Funds
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Smallcap and American is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and American Funds Developing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Developing and Smallcap World 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 Smallcap World Fund are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Developing has no effect on the direction of Smallcap World i.e., Smallcap World and American Funds go up and down completely randomly.
Pair Corralation between Smallcap World and American Funds
Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.26 times more return on investment than American Funds. However, Smallcap World is 1.26 times more volatile than American Funds Developing. It trades about 0.25 of its potential returns per unit of risk. American Funds Developing is currently generating about -0.13 per unit of risk. If you would invest 6,777 in Smallcap World Fund on September 5, 2024 and sell it today you would earn a total of 317.00 from holding Smallcap World Fund or generate 4.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. American Funds Developing
Performance |
| Timeline |
| Smallcap World |
| American Funds Developing |
Smallcap World and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and American Funds
The main advantage of trading using opposite Smallcap World and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Smallcap World vs. New World Fund | Smallcap World vs. Washington Mutual Investors | Smallcap World vs. Europacific Growth Fund | Smallcap World vs. New Perspective Fund |
| American Funds vs. Smallcap World Fund | American Funds vs. Investment Of America | American Funds vs. Europacific Growth Fund | American Funds vs. Capital World Growth |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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