Correlation Between Smallcap World and Washington Mutual
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Washington Mutual 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 Washington Mutual 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 Washington Mutual Investors, you can compare the effects of market volatilities on Smallcap World and Washington Mutual 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 Washington Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Washington Mutual.
Diversification Opportunities for Smallcap World and Washington Mutual
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and WASHINGTON is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Washington Mutual Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Mutual 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 Washington Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Mutual has no effect on the direction of Smallcap World i.e., Smallcap World and Washington Mutual go up and down completely randomly.
Pair Corralation between Smallcap World and Washington Mutual
Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.25 times more return on investment than Washington Mutual. However, Smallcap World is 1.25 times more volatile than Washington Mutual Investors. It trades about 0.12 of its potential returns per unit of risk. Washington Mutual Investors is currently generating about 0.14 per unit of risk. If you would invest 6,662 in Smallcap World Fund on September 2, 2024 and sell it today you would earn a total of 391.00 from holding Smallcap World Fund or generate 5.87% 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. Washington Mutual Investors
Performance |
| Timeline |
| Smallcap World |
| Washington Mutual |
Smallcap World and Washington Mutual Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Washington Mutual
The main advantage of trading using opposite Smallcap World and Washington Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Washington Mutual 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 Washington Mutual will offset losses from the drop in Washington Mutual'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 |
| Washington Mutual vs. Growth Fund Of | Washington Mutual vs. Europacific Growth Fund | Washington Mutual vs. Smallcap World Fund | Washington Mutual vs. Investment Of America |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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