Correlation Between Us Vector and Smallcap World

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

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

Diversification Opportunities for Us Vector and Smallcap World

0.96

Correlation Coefficient

Us Vector  Smallcap World

Almost no diversification

The 3 months correlation between DFVEX and Smallcap is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Us Vector Equity and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Us Vector 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 Us Vector Equity are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Us Vector i.e., Us Vector and Smallcap World go up and down completely randomly.

Pair Corralation between Us Vector and Smallcap World

Assuming the 90 days horizon Us Vector Equity is expected to under-perform the Smallcap World. But the mutual fund apears to be less risky and, when comparing its historical volatility, Us Vector Equity is 1.12 times less risky than Smallcap World. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Smallcap World Fund is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  6,843  in Smallcap World Fund on December 21, 2024 and sell it today you would lose (286.00) from holding Smallcap World Fund or give up 4.18% of portfolio value over 90 days.

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

Us Vector Equity  vs.  Smallcap World Fund

Us Vector Equity

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Us Vector and Smallcap World

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

The idea behind Us Vector Equity and Smallcap World 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.