Correlation Between Smallcap World and Investment
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Investment 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 Investment 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 Investment Of America, you can compare the effects of market volatilities on Smallcap World and Investment 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 Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Investment.
Diversification Opportunities for Smallcap World and Investment
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and Investment is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Investment Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Of America 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 Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Of America has no effect on the direction of Smallcap World i.e., Smallcap World and Investment go up and down completely randomly.
Pair Corralation between Smallcap World and Investment
Assuming the 90 days horizon Smallcap World is expected to generate 2.07 times less return on investment than Investment. In addition to that, Smallcap World is 1.16 times more volatile than Investment Of America. It trades about 0.05 of its total potential returns per unit of risk. Investment Of America is currently generating about 0.12 per unit of volatility. If you would invest 3,974 in Investment Of America on September 3, 2024 and sell it today you would earn a total of 2,329 from holding Investment Of America or generate 58.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Investment Of America
Performance |
| Timeline |
| Smallcap World |
| Investment Of America |
Smallcap World and Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Investment
The main advantage of trading using opposite Smallcap World and Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Investment 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 Investment will offset losses from the drop in Investment'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 |
| Investment vs. New World Fund | Investment vs. Washington Mutual Investors | Investment vs. Smallcap World Fund | Investment 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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