Correlation Between Smallcap World and Europac International

Can any of the company-specific risk be diversified away by investing in both Smallcap World and Europac International 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 Smallcap World and Europac International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smallcap World Fund and Europac International Bond, you can compare the effects of market volatilities on Smallcap World and Europac International 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 Smallcap World with a short position of Europac International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Europac International.

Diversification Opportunities for Smallcap World and Europac International

-0.55

Correlation Coefficient

Smallcap World  Europac International

Excellent diversification

The 3 months correlation between Smallcap and Europac is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Europac International Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europac International and Smallcap World 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 Smallcap World Fund are associated (or correlated) with Europac International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europac International has no effect on the direction of Smallcap World i.e., Smallcap World and Europac International go up and down completely randomly.

Pair Corralation between Smallcap World and Europac International

Assuming the 90 days horizon Smallcap World Fund is expected to under-perform the Europac International. In addition to that, Smallcap World is 3.39 times more volatile than Europac International Bond. It trades about -0.07 of its total potential returns per unit of risk. Europac International Bond is currently generating about 0.23 per unit of volatility. If you would invest  835.00  in Europac International Bond on December 22, 2024 and sell it today you would earn a total of  35.00  from holding Europac International Bond or generate 4.19% return on investment over 90 days.

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

Smallcap World Fund  vs.  Europac International Bond

Smallcap World

Risk-Adjusted Performance

Very Weak

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

Europac International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Europac International Bond are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Europac International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap World and Europac International

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

The idea behind Smallcap World Fund and Europac International Bond 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.