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 is expected to generate 1.96 times less return on investment than Washington Mutual. In addition to that, Smallcap World is 1.32 times more volatile than Washington Mutual Investors. It trades about 0.04 of its total potential returns per unit of risk. Washington Mutual Investors is currently generating about 0.12 per unit of volatility. If you would invest 5,717 in Washington Mutual Investors on September 1, 2024 and sell it today you would earn a total of 894.00 from holding Washington Mutual Investors or generate 15.64% 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. Dreyfus Technology Growth | Smallcap World vs. Global Technology Portfolio | Smallcap World vs. Mfs Technology Fund | Smallcap World vs. Hennessy Technology Fund |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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