Correlation Between Touchstone International and Small Cap

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

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

Diversification Opportunities for Touchstone International and Small Cap

-0.75

Correlation Coefficient

Touchstone International  Small Cap

Pay attention - limited upside

The 3 months correlation between Touchstone and Small is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone International Equit and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Touchstone International 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 Touchstone International Equity are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Equity has no effect on the direction of Touchstone International i.e., Touchstone International and Small Cap go up and down completely randomly.

Pair Corralation between Touchstone International and Small Cap

Assuming the 90 days horizon Touchstone International Equity is expected to generate 0.78 times more return on investment than Small Cap. However, Touchstone International Equity is 1.28 times less risky than Small Cap. It trades about 0.26 of its potential returns per unit of risk. Small Cap Equity is currently generating about -0.09 per unit of risk. If you would invest  1,370  in Touchstone International Equity on December 30, 2024 and sell it today you would earn a total of  206.00  from holding Touchstone International Equity or generate 15.04% return on investment over 90 days.

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

Touchstone International Equit  vs.  Small Cap Equity

Touchstone International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone International Equity are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Touchstone International showed solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Touchstone International and Small Cap

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

The idea behind Touchstone International Equity and Small Cap Equity 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.