Correlation Between Smallcap Growth and Global Diversified

Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Global Diversified 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 Global Diversified 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 Global Diversified Income, you can compare the effects of market volatilities on Smallcap Growth and Global Diversified 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 Global Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Global Diversified.

Diversification Opportunities for Smallcap Growth and Global Diversified

-0.36

Correlation Coefficient

Smallcap Growth  Global Diversified

Very good diversification

The 3 months correlation between Smallcap and Global is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Global Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Diversified Income 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 Global Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Diversified Income has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Global Diversified go up and down completely randomly.

Pair Corralation between Smallcap Growth and Global Diversified

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 6.11 times more return on investment than Global Diversified. However, Smallcap Growth is 6.11 times more volatile than Global Diversified Income. It trades about 0.16 of its potential returns per unit of risk. Global Diversified Income is currently generating about 0.0 per unit of risk. If you would invest  1,522  in Smallcap Growth Fund on September 12, 2024 and sell it today you would earn a total of  174.00  from holding Smallcap Growth Fund or generate 11.43% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Global Diversified Income

Smallcap Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly abnormal basic indicators, Smallcap Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Diversified Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Diversified 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 Global Diversified

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

The idea behind Smallcap Growth Fund and Global Diversified Income 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.

Check out your portfolio center.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..