Correlation Between Small Cap and World Ex
Can any of the company-specific risk be diversified away by investing in both Small Cap and World Ex 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 Small Cap and World Ex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Stock and World Ex Val, you can compare the effects of market volatilities on Small Cap and World Ex 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 Small Cap with a short position of World Ex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and World Ex.
Diversification Opportunities for Small Cap and World Ex
Almost no diversification
The 3 months correlation between Small and World is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and World Ex Val in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Ex Val and Small Cap 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 Small Cap Stock are associated (or correlated) with World Ex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Ex Val has no effect on the direction of Small Cap i.e., Small Cap and World Ex go up and down completely randomly.
Pair Corralation between Small Cap and World Ex
Assuming the 90 days horizon Small Cap Stock is expected to generate 1.7 times more return on investment than World Ex. However, Small Cap is 1.7 times more volatile than World Ex Val. It trades about 0.2 of its potential returns per unit of risk. World Ex Val is currently generating about 0.22 per unit of risk. If you would invest 1,227 in Small Cap Stock on May 30, 2025 and sell it today you would earn a total of 180.00 from holding Small Cap Stock or generate 14.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. World Ex Val
Performance |
| Timeline |
| Small Cap Stock |
| World Ex Val |
Small Cap and World Ex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and World Ex
The main advantage of trading using opposite Small Cap and World Ex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, World Ex 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 World Ex will offset losses from the drop in World Ex's long position.| Small Cap vs. The Gamco Global | Small Cap vs. Gabelli Convertible And | Small Cap vs. Rationalpier 88 Convertible | Small Cap vs. Putnam Convertible Securities |
| World Ex vs. Needham Aggressive Growth | World Ex vs. Praxis Genesis Growth | World Ex vs. Calamos Growth Fund | World Ex vs. Growth Allocation Fund |
Check out your portfolio center.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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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