Correlation Between Smallcap World and Deutsche Global

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

Diversification Opportunities for Smallcap World and Deutsche Global

0.59

Correlation Coefficient

Smallcap World  Deutsche Global

Very weak diversification

The 3 months correlation between Smallcap and Deutsche is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Deutsche Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Global Real 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 Deutsche Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Global Real has no effect on the direction of Smallcap World i.e., Smallcap World and Deutsche Global go up and down completely randomly.

Pair Corralation between Smallcap World and Deutsche Global

Assuming the 90 days horizon Smallcap World Fund is expected to under-perform the Deutsche Global. But the mutual fund apears to be less risky and, when comparing its historical volatility, Smallcap World Fund is 1.35 times less risky than Deutsche Global. The mutual fund trades about -0.39 of its potential returns per unit of risk. The Deutsche Global Real is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  740.00  in Deutsche Global Real on October 7, 2024 and sell it today you would lose (37.00) from holding Deutsche Global Real or give up 5.0% of portfolio value over 90 days.

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

Smallcap World Fund  vs.  Deutsche Global Real

Smallcap World

Risk-Adjusted Performance

0 of 100

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 fairly strong technical and fundamental indicators, Smallcap World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Deutsche Global Real

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smallcap World and Deutsche Global

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

The idea behind Smallcap World Fund and Deutsche Global Real 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.