Correlation Between Equity Growth and Global Small

Can any of the company-specific risk be diversified away by investing in both Equity Growth and Global Small 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 Equity Growth and Global Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Equity Growth Fund and Global Small Cap, you can compare the effects of market volatilities on Equity Growth and Global Small 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 Equity Growth with a short position of Global Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Global Small.

Diversification Opportunities for Equity Growth and Global Small

0.93

Correlation Coefficient

Equity Growth  Global Small

Almost no diversification

The 3 months correlation between Equity and Global is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Global Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Small Cap and Equity 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 Equity Growth Fund are associated (or correlated) with Global Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Small Cap has no effect on the direction of Equity Growth i.e., Equity Growth and Global Small go up and down completely randomly.

Pair Corralation between Equity Growth and Global Small

Assuming the 90 days horizon Equity Growth Fund is expected to under-perform the Global Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Equity Growth Fund is 1.18 times less risky than Global Small. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Global Small Cap is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,854  in Global Small Cap on December 29, 2024 and sell it today you would lose (92.00) from holding Global Small Cap or give up 4.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Equity Growth Fund  vs.  Global Small Cap

Equity Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Global Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Equity Growth and Global Small

The main advantage of trading using opposite Equity Growth and Global Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, Global Small 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 Global Small will offset losses from the drop in Global Small's long position.

The idea behind Equity Growth Fund and Global Small Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.