Correlation Between Growth Fund and Global Small

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

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

Diversification Opportunities for Growth Fund and Global Small

0.93

Correlation Coefficient

Growth Fund  Global Small

Almost no diversification

The 3 months correlation between Growth and Global is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund I and Global Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Small Cap and Growth Fund 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 Growth Fund I are associated (or correlated) with Global Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Small Cap has no effect on the direction of Growth Fund i.e., Growth Fund and Global Small go up and down completely randomly.

Pair Corralation between Growth Fund and Global Small

Assuming the 90 days horizon Growth Fund I is expected to under-perform the Global Small. In addition to that, Growth Fund is 1.19 times more volatile than Global Small Cap. It trades about -0.13 of its total potential returns per unit of risk. Global Small Cap is currently generating about -0.06 per unit of volatility. If you would invest  1,854  in Global Small Cap on December 29, 2024 and sell it today you would lose (92.00) from holding Global Small Cap or give up 4.96% of portfolio value over 90 days.

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

Growth Fund I  vs.  Global Small Cap

Growth Fund I

Risk-Adjusted Performance

Very Weak

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

Global Small Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Growth Fund and Global Small

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

The idea behind Growth Fund I and Global 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.