Correlation Between Smallcap World and Precious Metals

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

Diversification Opportunities for Smallcap World and Precious Metals

0.36

Correlation Coefficient

Smallcap World  Precious Metals

Weak diversification

The 3 months correlation between Smallcap and Precious is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Precious Metals And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals And 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals And has no effect on the direction of Smallcap World i.e., Smallcap World and Precious Metals go up and down completely randomly.

Pair Corralation between Smallcap World and Precious Metals

Assuming the 90 days horizon Smallcap World Fund is expected to generate 0.38 times more return on investment than Precious Metals. However, Smallcap World Fund is 2.62 times less risky than Precious Metals. It trades about 0.37 of its potential returns per unit of risk. Precious Metals And is currently generating about -0.01 per unit of risk. If you would invest  5,947  in Smallcap World Fund on April 20, 2025 and sell it today you would earn a total of  1,233  from holding Smallcap World Fund or generate 20.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Smallcap World Fund  vs.  Precious Metals And

Smallcap World

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap World showed solid returns over the last few months and may actually be approaching a breakup point.

Precious Metals And

Risk-Adjusted Performance

Very Weak

Over the last 90 days Precious Metals And has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Precious Metals 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 Precious Metals

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

The idea behind Smallcap World Fund and Precious Metals And 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .