Correlation Between International Fund and Small Company

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

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

Diversification Opportunities for International Fund and Small Company

0.43

Correlation Coefficient

International Fund  Small Company

Very weak diversification

The 3 months correlation between International and Small is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding International Fund Internation and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund and International Fund 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 International Fund International are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of International Fund i.e., International Fund and Small Company go up and down completely randomly.

Pair Corralation between International Fund and Small Company

Assuming the 90 days horizon International Fund is expected to generate 17.72 times less return on investment than Small Company. But when comparing it to its historical volatility, International Fund International is 1.8 times less risky than Small Company. It trades about 0.01 of its potential returns per unit of risk. Small Pany Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Small Pany Fund on August 31, 2024 and sell it today you would earn a total of  280.00  from holding Small Pany Fund or generate 8.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

International Fund Internation  vs.  Small Pany Fund

International Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Small Pany Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Company may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with International Fund and Small Company

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

The idea behind International Fund International and Small Pany 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.