Correlation Between Smallcap World and New Perspective
Can any of the company-specific risk be diversified away by investing in both Smallcap World and New Perspective 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 Perspective 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 Perspective Fund, you can compare the effects of market volatilities on Smallcap World and New Perspective 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 Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and New Perspective.
Diversification Opportunities for Smallcap World and New Perspective
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Smallcap and New is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Smallcap World i.e., Smallcap World and New Perspective go up and down completely randomly.
Pair Corralation between Smallcap World and New Perspective
Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.14 times more return on investment than New Perspective. However, Smallcap World is 1.14 times more volatile than New Perspective Fund. It trades about 0.1 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.01 per unit of risk. If you would invest 7,128 in Smallcap World Fund on August 27, 2024 and sell it today you would earn a total of 116.00 from holding Smallcap World Fund or generate 1.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. New Perspective Fund
Performance |
| Timeline |
| Smallcap World |
| New Perspective |
Smallcap World and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and New Perspective
The main advantage of trading using opposite Smallcap World and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, New Perspective 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 Perspective will offset losses from the drop in New Perspective's long position.| Smallcap World vs. Artisan Select Equity | Smallcap World vs. The Hartford Equity | Smallcap World vs. Touchstone International Equity | Smallcap World vs. Dreyfusstandish Global Fixed |
| New Perspective vs. Jhancock Diversified Macro | New Perspective vs. Lord Abbett Diversified | New Perspective vs. Oaktree Diversifiedome | New Perspective vs. Pgim Conservative Retirement |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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