Correlation Between International Developed and Us Small

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

By analyzing existing cross correlation between International Developed Markets and Us Small Cap, you can compare the effects of market volatilities on International Developed and Us Small 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 International Developed with a short position of Us Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Developed and Us Small.

Diversification Opportunities for International Developed and Us Small

0.29

Correlation Coefficient

International Developed  Us Small

Modest diversification

The 3 months correlation between International and RSCRX is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding International Developed Market and Us Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Small Cap and International Developed 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 International Developed Markets are associated (or correlated) with Us Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Small Cap has no effect on the direction of International Developed i.e., International Developed and Us Small go up and down completely randomly.

Pair Corralation between International Developed and Us Small

Assuming the 90 days horizon International Developed Markets is expected to generate 0.54 times more return on investment than Us Small. However, International Developed Markets is 1.86 times less risky than Us Small. It trades about 0.31 of its potential returns per unit of risk. Us Small Cap is currently generating about -0.3 per unit of risk. If you would invest  4,242  in International Developed Markets on December 4, 2024 and sell it today you would earn a total of  174.00  from holding International Developed Markets or generate 4.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

International Developed Market  vs.  Us Small Cap

International Developed

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Developed Markets are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, International Developed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Us Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Us Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with International Developed and Us Small

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

The idea behind International Developed Markets and Us Small Cap 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.