Correlation Between Smallcap World and Intermediate Bond
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Intermediate Bond 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 Intermediate Bond 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 Intermediate Bond Fund, you can compare the effects of market volatilities on Smallcap World and Intermediate Bond 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 Intermediate Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Intermediate Bond.
Diversification Opportunities for Smallcap World and Intermediate Bond
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smallcap and Intermediate is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Intermediate Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Bond 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 Intermediate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Bond has no effect on the direction of Smallcap World i.e., Smallcap World and Intermediate Bond go up and down completely randomly.
Pair Corralation between Smallcap World and Intermediate Bond
Assuming the 90 days horizon Smallcap World Fund is expected to generate 4.03 times more return on investment than Intermediate Bond. However, Smallcap World is 4.03 times more volatile than Intermediate Bond Fund. It trades about 0.15 of its potential returns per unit of risk. Intermediate Bond Fund is currently generating about 0.04 per unit of risk. If you would invest 6,616 in Smallcap World Fund on November 3, 2024 and sell it today you would earn a total of 180.00 from holding Smallcap World Fund or generate 2.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Intermediate Bond Fund
Performance |
| Timeline |
| Smallcap World |
| Intermediate Bond |
Smallcap World and Intermediate Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Intermediate Bond
The main advantage of trading using opposite Smallcap World and Intermediate Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Intermediate Bond 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 Intermediate Bond will offset losses from the drop in Intermediate Bond's 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 |
| Intermediate Bond vs. Bond Fund Of | Intermediate Bond vs. American High Income | Intermediate Bond vs. Smallcap World Fund | Intermediate Bond vs. Capital World Bond |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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