Correlation Between Smallcap Fund and Capital World

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

Diversification Opportunities for Smallcap Fund and Capital World

0.72

Correlation Coefficient

Smallcap Fund  Capital World

Poor diversification

The 3 months correlation between Smallcap and Capital is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Capital World go up and down completely randomly.

Pair Corralation between Smallcap Fund and Capital World

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 0.76 times more return on investment than Capital World. However, Smallcap Fund Fka is 1.32 times less risky than Capital World. It trades about -0.25 of its potential returns per unit of risk. Capital World Growth is currently generating about -0.22 per unit of risk. If you would invest  2,752  in Smallcap Fund Fka on October 9, 2024 and sell it today you would lose (175.00) from holding Smallcap Fund Fka or give up 6.36% of portfolio value over 90 days.

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

Smallcap Fund Fka  vs.  Capital World Growth

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.

Capital World Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Capital World

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

The idea behind Smallcap Fund Fka and Capital World Growth 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.