Correlation Between Smallcap World and Ep Emerging

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

Diversification Opportunities for Smallcap World and Ep Emerging

0.96

Correlation Coefficient

Smallcap World  Ep Emerging

Almost no diversification

The 3 months correlation between Smallcap and EPASX is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Ep Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ep Emerging Markets 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 Ep Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ep Emerging Markets has no effect on the direction of Smallcap World i.e., Smallcap World and Ep Emerging go up and down completely randomly.

Pair Corralation between Smallcap World and Ep Emerging

Assuming the 90 days horizon Smallcap World is expected to generate 1.14 times less return on investment than Ep Emerging. In addition to that, Smallcap World is 1.31 times more volatile than Ep Emerging Markets. It trades about 0.17 of its total potential returns per unit of risk. Ep Emerging Markets is currently generating about 0.25 per unit of volatility. If you would invest  1,029  in Ep Emerging Markets on May 14, 2025 and sell it today you would earn a total of  87.00  from holding Ep Emerging Markets or generate 8.45% 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.  Ep Emerging Markets

Smallcap World

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap World may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Ep Emerging Markets

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ep Emerging Markets are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ep Emerging may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Smallcap World and Ep Emerging

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

The idea behind Smallcap World Fund and Ep Emerging Markets 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.