Correlation Between Smallcap Fund and Diversified International

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

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

Diversification Opportunities for Smallcap Fund and Diversified International

-0.45

Correlation Coefficient

Smallcap Fund  Diversified International

Very good diversification

The 3 months correlation between Smallcap and Diversified is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Diversified International Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified International and Smallcap 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 Smallcap Fund Fka are associated (or correlated) with Diversified International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified International has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Diversified International go up and down completely randomly.

Pair Corralation between Smallcap Fund and Diversified International

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 1.36 times more return on investment than Diversified International. However, Smallcap Fund is 1.36 times more volatile than Diversified International Fund. It trades about 0.14 of its potential returns per unit of risk. Diversified International Fund is currently generating about -0.02 per unit of risk. If you would invest  2,516  in Smallcap Fund Fka on September 12, 2024 and sell it today you would earn a total of  248.00  from holding Smallcap Fund Fka or generate 9.86% return on investment over 90 days.

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

Smallcap Fund Fka  vs.  Diversified International Fund

Smallcap Fund Fka

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Fund Fka are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diversified International

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Smallcap Fund Fka and Diversified International 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.