Correlation Between Smallcap World and Growth Fund

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

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

Diversification Opportunities for Smallcap World and Growth Fund

0.78

Correlation Coefficient

Smallcap World  Growth Fund

Poor diversification

The 3 months correlation between Smallcap and Growth is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Growth Fund Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund and Smallcap World 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 World Fund are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund has no effect on the direction of Smallcap World i.e., Smallcap World and Growth Fund go up and down completely randomly.

Pair Corralation between Smallcap World and Growth Fund

Assuming the 90 days horizon Smallcap World Fund is expected to generate 0.49 times more return on investment than Growth Fund. However, Smallcap World Fund is 2.03 times less risky than Growth Fund. It trades about -0.12 of its potential returns per unit of risk. Growth Fund Of is currently generating about -0.08 per unit of risk. If you would invest  6,037  in Smallcap World Fund on November 28, 2024 and sell it today you would lose (372.00) from holding Smallcap World Fund or give up 6.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Smallcap World Fund  vs.  Growth Fund Of

Smallcap World

Risk-Adjusted Performance

Very Weak

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

Growth Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Growth Fund Of 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 World and Growth Fund

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

The idea behind Smallcap World Fund and Growth Fund Of 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.