Correlation Between Smallcap World and Domini Sustainable

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

Diversification Opportunities for Smallcap World and Domini Sustainable

0.92

Correlation Coefficient

Smallcap World  Domini Sustainable

Almost no diversification

The 3 months correlation between Smallcap and Domini is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Domini Sustainable Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Domini Sustainable 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 Domini Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Domini Sustainable has no effect on the direction of Smallcap World i.e., Smallcap World and Domini Sustainable go up and down completely randomly.

Pair Corralation between Smallcap World and Domini Sustainable

Assuming the 90 days horizon Smallcap World Fund is expected to generate 0.96 times more return on investment than Domini Sustainable. However, Smallcap World Fund is 1.04 times less risky than Domini Sustainable. It trades about 0.12 of its potential returns per unit of risk. Domini Sustainable Solutions is currently generating about 0.07 per unit of risk. If you would invest  6,659  in Smallcap World Fund on September 4, 2024 and sell it today you would earn a total of  406.00  from holding Smallcap World Fund or generate 6.1% return on investment over 90 days.

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

Smallcap World Fund  vs.  Domini Sustainable Solutions

Smallcap World

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Smallcap World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Domini Sustainable

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Domini Sustainable Solutions are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Domini Sustainable 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 Domini Sustainable

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

The idea behind Smallcap World Fund and Domini Sustainable Solutions 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.