Correlation Between Small Company and International Equity

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

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

Diversification Opportunities for Small Company and International Equity

-0.57

Correlation Coefficient

Small Company  International Equity

Excellent diversification

The 3 months correlation between Small and International is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and Small Company 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 Pany Growth are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Small Company i.e., Small Company and International Equity go up and down completely randomly.

Pair Corralation between Small Company and International Equity

Assuming the 90 days horizon Small Pany Growth is expected to generate 0.41 times more return on investment than International Equity. However, Small Pany Growth is 2.43 times less risky than International Equity. It trades about -0.07 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.25 per unit of risk. If you would invest  902.00  in Small Pany Growth on October 11, 2024 and sell it today you would lose (35.00) from holding Small Pany Growth or give up 3.88% of portfolio value over 90 days.

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

Small Pany Growth  vs.  International Equity Portfolio

Small Pany Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Small Company showed solid returns over the last few months and may actually be approaching a breakup point.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Small Company and International Equity

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

The idea behind Small Pany Growth and International Equity Portfolio 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.