Correlation Between Smallcap World and Grandeur Peak

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

Diversification Opportunities for Smallcap World and Grandeur Peak

0.78
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Smallcap World and Grandeur Peak

Assuming the 90 days horizon Smallcap World Fund is expected to generate 0.85 times more return on investment than Grandeur Peak. However, Smallcap World Fund is 1.18 times less risky than Grandeur Peak. It trades about 0.06 of its potential returns per unit of risk. Grandeur Peak Global is currently generating about 0.03 per unit of risk. If you would invest  5,298  in Smallcap World Fund on September 5, 2024 and sell it today you would earn a total of  1,451  from holding Smallcap World Fund or generate 27.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Smallcap World Fund  vs.  Grandeur Peak Global

 Performance 
       Timeline  
Smallcap World 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Smallcap World may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Grandeur Peak Global 

Risk-Adjusted Performance

5 of 100

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

Smallcap World and Grandeur Peak Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Smallcap World and Grandeur Peak

The main advantage of trading using opposite Smallcap World and Grandeur Peak positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Grandeur Peak 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 Grandeur Peak will offset losses from the drop in Grandeur Peak's long position.
The idea behind Smallcap World Fund and Grandeur Peak Global 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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