Correlation Between Small Cap and International Government
Can any of the company-specific risk be diversified away by investing in both Small Cap and International Government 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 International Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Special and International Government Bond, you can compare the effects of market volatilities on Small Cap and International Government 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 International Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and International Government.
Diversification Opportunities for Small Cap and International Government
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and International is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Special and International Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Government 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 Special are associated (or correlated) with International Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Government has no effect on the direction of Small Cap i.e., Small Cap and International Government go up and down completely randomly.
Pair Corralation between Small Cap and International Government
Assuming the 90 days horizon Small Cap Special is expected to generate 2.84 times more return on investment than International Government. However, Small Cap is 2.84 times more volatile than International Government Bond. It trades about 0.17 of its potential returns per unit of risk. International Government Bond is currently generating about 0.15 per unit of risk. If you would invest 1,245 in Small Cap Special on November 2, 2024 and sell it today you would earn a total of 36.00 from holding Small Cap Special or generate 2.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Special vs. International Government Bond
Performance |
| Timeline |
| Small Cap Special |
| International Government |
Small Cap and International Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and International Government
The main advantage of trading using opposite Small Cap and International Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, International Government 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 International Government will offset losses from the drop in International Government's long position.| Small Cap vs. Growth Allocation Fund | Small Cap vs. Small Pany Growth | Small Cap vs. Tfa Alphagen Growth | Small Cap vs. The Equity Growth |
| International Government vs. Mid Cap Index | International Government vs. Mid Cap Strategic | International Government vs. Valic Company I | International Government vs. Valic Company I |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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