Correlation Between Small Company and Global Growth

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

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

Diversification Opportunities for Small Company and Global Growth

0.52

Correlation Coefficient

Small Company  Global Growth

Very weak diversification

The 3 months correlation between Small and Global is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Fund and Global Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Growth and Small Company 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 Pany Fund are associated (or correlated) with Global Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Growth has no effect on the direction of Small Company i.e., Small Company and Global Growth go up and down completely randomly.

Pair Corralation between Small Company and Global Growth

Assuming the 90 days horizon Small Pany Fund is expected to under-perform the Global Growth. In addition to that, Small Company is 1.03 times more volatile than Global Growth Fund. It trades about -0.07 of its total potential returns per unit of risk. Global Growth Fund is currently generating about 0.02 per unit of volatility. If you would invest  1,072  in Global Growth Fund on December 28, 2024 and sell it today you would earn a total of  10.00  from holding Global Growth Fund or generate 0.93% return on investment over 90 days.

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

Small Pany Fund  vs.  Global Growth Fund

Small Pany Fund

Risk-Adjusted Performance

Very Weak

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

Global Growth

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Growth Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Global Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Company and Global Growth

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

The idea behind Small Pany Fund and Global Growth Fund 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .