Correlation Between Smallcap World and Intermediate Term

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

Diversification Opportunities for Smallcap World and Intermediate Term

0.6

Correlation Coefficient

Smallcap World  Intermediate Term

Poor diversification

The 3 months correlation between Smallcap and Intermediate is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Intermediate Term Tax Free Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Tax 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Tax has no effect on the direction of Smallcap World i.e., Smallcap World and Intermediate Term go up and down completely randomly.

Pair Corralation between Smallcap World and Intermediate Term

Assuming the 90 days horizon Smallcap World Fund is expected to generate 5.92 times more return on investment than Intermediate Term. However, Smallcap World is 5.92 times more volatile than Intermediate Term Tax Free Bond. It trades about 0.22 of its potential returns per unit of risk. Intermediate Term Tax Free Bond is currently generating about 0.09 per unit of risk. If you would invest  6,600  in Smallcap World Fund on May 7, 2025 and sell it today you would earn a total of  751.00  from holding Smallcap World Fund or generate 11.38% return on investment over 90 days.

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

Smallcap World Fund  vs.  Intermediate Term Tax Free Bon

Smallcap World

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 17 (%) 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.

Intermediate Term Tax

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Tax Free Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Intermediate Term 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 Intermediate Term

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

The idea behind Smallcap World Fund and Intermediate Term Tax Free Bond 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.