Correlation Between Smallcap Fund and International Equity

Can any of the company-specific risk be diversified away by investing in both Smallcap Fund 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 Smallcap Fund and International Equity 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 International Equity Fund, you can compare the effects of market volatilities on Smallcap Fund 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 Smallcap Fund with a short position of International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Fund and International Equity.

Diversification Opportunities for Smallcap Fund and International Equity

0.17

Correlation Coefficient

Smallcap Fund  International Equity

Average diversification

The 3 months correlation between Smallcap and International is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and International Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 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 Smallcap Fund i.e., Smallcap Fund and International Equity go up and down completely randomly.

Pair Corralation between Smallcap Fund and International Equity

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 1.65 times more return on investment than International Equity. However, Smallcap Fund is 1.65 times more volatile than International Equity Fund. It trades about -0.03 of its potential returns per unit of risk. International Equity Fund is currently generating about -0.16 per unit of risk. If you would invest  2,636  in Smallcap Fund Fka on October 11, 2024 and sell it today you would lose (70.00) from holding Smallcap Fund Fka or give up 2.66% of portfolio value over 90 days.

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

Smallcap Fund Fka  vs.  International Equity Fund

Smallcap Fund Fka

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Smallcap Fund and International Equity

The main advantage of trading using opposite Smallcap Fund and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Fund 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 Smallcap Fund Fka and International Equity 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.