Correlation Between Smallcap World and Alphacentric Global

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

Diversification Opportunities for Smallcap World and Alphacentric Global

0.58

Correlation Coefficient

Smallcap World  Alphacentric Global

Very weak diversification

The 3 months correlation between Smallcap and Alphacentric is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Alphacentric Global Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphacentric Global 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 Alphacentric Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphacentric Global has no effect on the direction of Smallcap World i.e., Smallcap World and Alphacentric Global go up and down completely randomly.

Pair Corralation between Smallcap World and Alphacentric Global

Assuming the 90 days horizon Smallcap World is expected to generate 3.12 times less return on investment than Alphacentric Global. But when comparing it to its historical volatility, Smallcap World Fund is 1.87 times less risky than Alphacentric Global. It trades about 0.12 of its potential returns per unit of risk. Alphacentric Global Innovations is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,172  in Alphacentric Global Innovations on September 2, 2024 and sell it today you would earn a total of  225.00  from holding Alphacentric Global Innovations or generate 19.2% return on investment over 90 days.

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

Smallcap World Fund  vs.  Alphacentric Global Innovation

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 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.

Alphacentric Global

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphacentric Global Innovations are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Alphacentric Global showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smallcap World and Alphacentric Global

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

The idea behind Smallcap World Fund and Alphacentric Global Innovations 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.