Correlation Between Smallcap World and Federated Emerging

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

Diversification Opportunities for Smallcap World and Federated Emerging

0.95

Correlation Coefficient

Smallcap World  Federated Emerging

Almost no diversification

The 3 months correlation between Smallcap and Federated is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Federated Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Emerging Market 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 Federated Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Emerging Market has no effect on the direction of Smallcap World i.e., Smallcap World and Federated Emerging go up and down completely randomly.

Pair Corralation between Smallcap World and Federated Emerging

Assuming the 90 days horizon Smallcap World Fund is expected to generate 3.26 times more return on investment than Federated Emerging. However, Smallcap World is 3.26 times more volatile than Federated Emerging Market. It trades about 0.17 of its potential returns per unit of risk. Federated Emerging Market is currently generating about 0.46 per unit of risk. If you would invest  6,859  in Smallcap World Fund on May 11, 2025 and sell it today you would earn a total of  518.00  from holding Smallcap World Fund or generate 7.55% 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.  Federated Emerging Market

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 technical and fundamental indicators, Smallcap World may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Federated Emerging Market

Risk-Adjusted Performance

High

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Emerging Market are ranked lower than 35 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Federated Emerging may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Smallcap World and Federated Emerging

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

The idea behind Smallcap World Fund and Federated Emerging Market 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.