Correlation Between Smallcap World and New World
Can any of the company-specific risk be diversified away by investing in both Smallcap World and New 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 Smallcap World and New World 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 New World Fund, you can compare the effects of market volatilities on Smallcap World and New 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 Smallcap World with a short position of New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and New World.
Diversification Opportunities for Smallcap World and New World
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Smallcap and New is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund 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 New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Smallcap World i.e., Smallcap World and New World go up and down completely randomly.
Pair Corralation between Smallcap World and New World
Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.25 times more return on investment than New World. However, Smallcap World is 1.25 times more volatile than New World Fund. It trades about 0.06 of its potential returns per unit of risk. New World Fund is currently generating about 0.08 per unit of risk. If you would invest 5,471 in Smallcap World Fund on September 12, 2024 and sell it today you would earn a total of 1,561 from holding Smallcap World Fund or generate 28.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. New World Fund
Performance |
| Timeline |
| Smallcap World |
| New World Fund |
Smallcap World and New World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and New World
The main advantage of trading using opposite Smallcap World and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, New 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 New World will offset losses from the drop in New World'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 |
| New World vs. Pax High Yield | New World vs. Blackrock High Yield | New World vs. Prudential High Yield | New World vs. Strategic Advisers Income |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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