Correlation Between Smallcap and American Funds

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

By analyzing existing cross correlation between Smallcap Sp 600 and American Funds Government, you can compare the effects of market volatilities on Smallcap and American Funds 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 with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap and American Funds.

Diversification Opportunities for Smallcap and American Funds

0.0

Correlation Coefficient

Smallcap  American Funds

Pay attention - limited upside

The 3 months correlation between Smallcap and American is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and American Funds Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Government and Smallcap 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 Sp 600 are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Government has no effect on the direction of Smallcap i.e., Smallcap and American Funds go up and down completely randomly.

Pair Corralation between Smallcap and American Funds

If you would invest  100.00  in American Funds Government on October 25, 2024 and sell it today you would earn a total of  0.00  from holding American Funds Government or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Smallcap Sp 600  vs.  American Funds Government

Smallcap Sp 600

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smallcap Sp 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Smallcap Sp 600 and American Funds Government 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.