Correlation Between Smallcap World and Us Government
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Us Government 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 Us Government 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 Us Government Securities, you can compare the effects of market volatilities on Smallcap World and Us Government 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 Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Us Government.
Diversification Opportunities for Smallcap World and Us Government
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Smallcap and USGFX is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities 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 Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Smallcap World i.e., Smallcap World and Us Government go up and down completely randomly.
Pair Corralation between Smallcap World and Us Government
Assuming the 90 days horizon Smallcap World Fund is expected to generate 2.51 times more return on investment than Us Government. However, Smallcap World is 2.51 times more volatile than Us Government Securities. It trades about 0.05 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.02 per unit of risk. If you would invest 6,399 in Smallcap World Fund on August 29, 2024 and sell it today you would earn a total of 604.00 from holding Smallcap World Fund or generate 9.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Us Government Securities
Performance |
| Timeline |
| Smallcap World |
| Us Government Securities |
Smallcap World and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Us Government
The main advantage of trading using opposite Smallcap World and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Us Government 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 Us Government will offset losses from the drop in Us Government'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 |
| Us Government vs. Shelton Funds | Us Government vs. Artisan Thematic Fund | Us Government vs. Versatile Bond Portfolio | Us Government vs. Barings Active Short |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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