Correlation Between Smallcap World and Morningstar International

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

Diversification Opportunities for Smallcap World and Morningstar International

0.93

Correlation Coefficient

Smallcap World  Morningstar International

Almost no diversification

The 3 months correlation between SMALLCAP and Morningstar is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Morningstar International Equi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar International 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 Morningstar International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar International has no effect on the direction of Smallcap World i.e., Smallcap World and Morningstar International go up and down completely randomly.

Pair Corralation between Smallcap World and Morningstar International

Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.03 times more return on investment than Morningstar International. However, Smallcap World is 1.03 times more volatile than Morningstar International Equity. It trades about 0.15 of its potential returns per unit of risk. Morningstar International Equity is currently generating about 0.15 per unit of risk. If you would invest  6,872  in Smallcap World Fund on May 14, 2025 and sell it today you would earn a total of  473.00  from holding Smallcap World Fund or generate 6.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Smallcap World Fund  vs.  Morningstar International Equi

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 12 (%) 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.

Morningstar International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar International Equity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Morningstar International may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Smallcap World and Morningstar International

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

The idea behind Smallcap World Fund and Morningstar International Equity 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.