Correlation Between Smallcap World and Lord Abbett

Can any of the company-specific risk be diversified away by investing in both Smallcap World and Lord Abbett 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 Lord Abbett 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 Lord Abbett International, you can compare the effects of market volatilities on Smallcap World and Lord Abbett 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 Lord Abbett. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Lord Abbett.

Diversification Opportunities for Smallcap World and Lord Abbett

-0.5

Correlation Coefficient

Smallcap World  Lord Abbett

Very good diversification

The 3 months correlation between Smallcap and Lord is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Lord Abbett International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lord Abbett 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 Lord Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lord Abbett International has no effect on the direction of Smallcap World i.e., Smallcap World and Lord Abbett go up and down completely randomly.

Pair Corralation between Smallcap World and Lord Abbett

Assuming the 90 days horizon Smallcap World Fund is expected to under-perform the Lord Abbett. In addition to that, Smallcap World is 1.25 times more volatile than Lord Abbett International. It trades about -0.06 of its total potential returns per unit of risk. Lord Abbett International is currently generating about 0.28 per unit of volatility. If you would invest  781.00  in Lord Abbett International on December 20, 2024 and sell it today you would earn a total of  114.00  from holding Lord Abbett International or generate 14.6% 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.  Lord Abbett International

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.

Lord Abbett International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lord Abbett International are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Lord Abbett showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smallcap World and Lord Abbett

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

The idea behind Smallcap World Fund and Lord Abbett International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.