Correlation Between Smallcap World and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Mid Cap 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 Mid Cap 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 Mid Cap Value Profund, you can compare the effects of market volatilities on Smallcap World and Mid Cap 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 Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Mid Cap.
Diversification Opportunities for Smallcap World and Mid Cap
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smallcap and Mid is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Mid Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value 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 Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Smallcap World i.e., Smallcap World and Mid Cap go up and down completely randomly.
Pair Corralation between Smallcap World and Mid Cap
Assuming the 90 days horizon Smallcap World is expected to generate 1.05 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Smallcap World Fund is 1.22 times less risky than Mid Cap. It trades about 0.06 of its potential returns per unit of risk. Mid Cap Value Profund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 7,218 in Mid Cap Value Profund on September 12, 2024 and sell it today you would earn a total of 2,160 from holding Mid Cap Value Profund or generate 29.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Mid Cap Value Profund
Performance |
| Timeline |
| Smallcap World |
| Mid Cap Value |
Smallcap World and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Mid Cap
The main advantage of trading using opposite Smallcap World and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Mid Cap 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 Mid Cap will offset losses from the drop in Mid Cap's long position.| Smallcap World vs. Touchstone Premium Yield | Smallcap World vs. Dreyfusstandish Global Fixed | Smallcap World vs. Ambrus Core Bond | Smallcap World vs. Franklin High Yield |
| Mid Cap vs. Inverse Government Long | Mid Cap vs. Schwab Government Money | Mid Cap vs. Goldman Sachs Government | Mid Cap vs. Payden Government 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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