Correlation Between Small Cap and Smallcap World
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Stock and Smallcap World Fund, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Smallcap World.
Diversification Opportunities for Small Cap and Smallcap World
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Smallcap is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Small Cap 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 Small Cap Stock 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 Small Cap i.e., Small Cap and Smallcap World go up and down completely randomly.
Pair Corralation between Small Cap and Smallcap World
Assuming the 90 days horizon Small Cap Stock is expected to generate 1.36 times more return on investment than Smallcap World. However, Small Cap is 1.36 times more volatile than Smallcap World Fund. It trades about 0.04 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.04 per unit of risk. If you would invest 1,281 in Small Cap Stock on September 12, 2024 and sell it today you would earn a total of 221.00 from holding Small Cap Stock or generate 17.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Smallcap World Fund
Performance |
| Timeline |
| Small Cap Stock |
| Smallcap World |
Small Cap and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Smallcap World
The main advantage of trading using opposite Small Cap and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Shelton Emerging Markets | Small Cap vs. Kinetics Market Opportunities | Small Cap vs. Siit Emerging Markets | Small Cap vs. Investec Emerging Markets |
| Smallcap World vs. Small Cap Stock | Smallcap World vs. T Rowe Price | Smallcap World vs. T Rowe Price | Smallcap World vs. Rbb 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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