Correlation Between International Growth and Small Cap
Can any of the company-specific risk be diversified away by investing in both International Growth and Small 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 International Growth and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Growth Fund and Small Cap Value, you can compare the effects of market volatilities on International Growth and Small 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 International Growth with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Growth and Small Cap.
Diversification Opportunities for International Growth and Small Cap
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Small is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding International Growth Fund and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and International Growth 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 International Growth Fund are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of International Growth i.e., International Growth and Small Cap go up and down completely randomly.
Pair Corralation between International Growth and Small Cap
Assuming the 90 days horizon International Growth Fund is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Growth Fund is 1.41 times less risky than Small Cap. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Small Cap Value is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,062 in Small Cap Value on August 29, 2024 and sell it today you would earn a total of 151.00 from holding Small Cap Value or generate 14.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Growth Fund vs. Small Cap Value
Performance |
| Timeline |
| International Growth |
| Small Cap Value |
International Growth and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Growth and Small Cap
The main advantage of trading using opposite International Growth and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Growth position performs unexpectedly, Small 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 Small Cap will offset losses from the drop in Small Cap's long position.| International Growth vs. Europacific Growth Fund | International Growth vs. Europacific Growth Fund | International Growth vs. Europacific Growth Fund | International Growth vs. Europacific Growth Fund |
| Small Cap vs. Small Cap Growth | Small Cap vs. Kinetics Small Cap | Small Cap vs. Small Midcap Dividend Income | Small Cap vs. Touchstone Small Cap |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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