Correlation Between Blackrock International and Small Cap

Can any of the company-specific risk be diversified away by investing in both Blackrock 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 Blackrock 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 Blackrock International Index and Small Cap Stock, you can compare the effects of market volatilities on Blackrock 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 Blackrock International with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blackrock International and Small Cap.

Diversification Opportunities for Blackrock International and Small Cap

0.85

Correlation Coefficient

Blackrock International  Small Cap

Very poor diversification

The 3 months correlation between Blackrock and Small is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Blackrock International Index and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Blackrock 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 Blackrock International Index 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 Stock has no effect on the direction of Blackrock International i.e., Blackrock International and Small Cap go up and down completely randomly.

Pair Corralation between Blackrock International and Small Cap

Assuming the 90 days horizon Blackrock International is expected to generate 1.83 times less return on investment than Small Cap. But when comparing it to its historical volatility, Blackrock International Index is 1.45 times less risky than Small Cap. It trades about 0.15 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,197  in Small Cap Stock on May 1, 2025 and sell it today you would earn a total of  169.00  from holding Small Cap Stock or generate 14.12% return on investment over 90 days.

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

Blackrock International Index  vs.  Small Cap Stock

Blackrock International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blackrock International Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Blackrock International may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Small Cap Stock

Risk-Adjusted Performance

Good

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

Pair Trading with Blackrock International and Small Cap

The main advantage of trading using opposite Blackrock International and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blackrock 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 Blackrock International Index and Small Cap Stock 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.