Correlation Between Smallcap Growth and World Core

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

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

Diversification Opportunities for Smallcap Growth and World Core

0.93

Correlation Coefficient

Smallcap Growth  World Core

Almost no diversification

The 3 months correlation between Smallcap and World is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and World Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Core Equity and Smallcap Growth 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 Growth Fund are associated (or correlated) with World Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Core Equity has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and World Core go up and down completely randomly.

Pair Corralation between Smallcap Growth and World Core

Assuming the 90 days horizon Smallcap Growth is expected to generate 1.57 times less return on investment than World Core. In addition to that, Smallcap Growth is 1.71 times more volatile than World Core Equity. It trades about 0.02 of its total potential returns per unit of risk. World Core Equity is currently generating about 0.07 per unit of volatility. If you would invest  2,216  in World Core Equity on October 22, 2024 and sell it today you would earn a total of  250.00  from holding World Core Equity or generate 11.28% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  World Core Equity

Smallcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

World Core Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smallcap Growth and World Core

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

The idea behind Smallcap Growth Fund and World Core Equity 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.