Correlation Between Small Cap and International Strategic

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

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

Diversification Opportunities for Small Cap and International Strategic

0.32

Correlation Coefficient

Small Cap  International Strategic

Weak diversification

The 3 months correlation between Small and International is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and International Strategic Equiti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Strategic and Small Cap 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 Cap Equity are associated (or correlated) with International Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Strategic has no effect on the direction of Small Cap i.e., Small Cap and International Strategic go up and down completely randomly.

Pair Corralation between Small Cap and International Strategic

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the International Strategic. In addition to that, Small Cap is 1.56 times more volatile than International Strategic Equities. It trades about -0.27 of its total potential returns per unit of risk. International Strategic Equities is currently generating about -0.33 per unit of volatility. If you would invest  1,347  in International Strategic Equities on October 9, 2024 and sell it today you would lose (62.00) from holding International Strategic Equities or give up 4.6% of portfolio value over 90 days.

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

Small Cap Equity  vs.  International Strategic Equiti

Small Cap Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Strategic Equities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, International Strategic 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 Cap and International Strategic

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

The idea behind Small Cap Equity and International Strategic Equities 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.