Correlation Between California Municipal and Smallcap World
Can any of the company-specific risk be diversified away by investing in both California Municipal and Smallcap World 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 California Municipal and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Municipal Portfolio and Smallcap World Fund, you can compare the effects of market volatilities on California Municipal and Smallcap World 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 California Municipal with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Municipal and Smallcap World.
Diversification Opportunities for California Municipal and Smallcap World
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between California and Smallcap is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding California Municipal Portfolio and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and California Municipal 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 California Municipal Portfolio are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of California Municipal i.e., California Municipal and Smallcap World go up and down completely randomly.
Pair Corralation between California Municipal and Smallcap World
Assuming the 90 days horizon California Municipal Portfolio is expected to generate 0.22 times more return on investment than Smallcap World. However, California Municipal Portfolio is 4.52 times less risky than Smallcap World. It trades about -0.2 of its potential returns per unit of risk. Smallcap World Fund is currently generating about -0.24 per unit of risk. If you would invest 1,386 in California Municipal Portfolio on October 17, 2024 and sell it today you would lose (12.00) from holding California Municipal Portfolio or give up 0.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Municipal Portfolio vs. Smallcap World Fund
Performance |
| Timeline |
| California Municipal |
| Smallcap World |
California Municipal and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Municipal and Smallcap World
The main advantage of trading using opposite California Municipal and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Municipal position performs unexpectedly, Smallcap World 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 Smallcap World will offset losses from the drop in Smallcap World's long position.| California Municipal vs. Americafirst Large Cap | California Municipal vs. Aqr Large Cap | California Municipal vs. Vest Large Cap | California Municipal vs. Fisher Large Cap |
| Smallcap World vs. Nuveen Strategic Municipal | Smallcap World vs. California Municipal Portfolio | Smallcap World vs. Morningstar Defensive Bond | Smallcap World vs. Maryland Tax Free Bond |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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