Correlation Between Alphabet and Smallcap World

Can any of the company-specific risk be diversified away by investing in both Alphabet and Smallcap World 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 Alphabet and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alphabet Inc Class C and Smallcap World Fund, you can compare the effects of market volatilities on Alphabet and Smallcap World 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 Alphabet with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Smallcap World.

Diversification Opportunities for Alphabet and Smallcap World

0.86

Correlation Coefficient

Alphabet  Smallcap World

Very poor diversification

The 3 months correlation between Alphabet and Smallcap is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Alphabet 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 Alphabet Inc Class C are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Alphabet i.e., Alphabet and Smallcap World go up and down completely randomly.

Pair Corralation between Alphabet and Smallcap World

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 2.27 times more return on investment than Smallcap World. However, Alphabet is 2.27 times more volatile than Smallcap World Fund. It trades about 0.18 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.3 per unit of risk. If you would invest  16,070  in Alphabet Inc Class C on April 30, 2025 and sell it today you would earn a total of  3,272  from holding Alphabet Inc Class C or generate 20.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Alphabet Inc Class C  vs.  Smallcap World Fund

Alphabet Class C

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

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 23 (%) 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.

Pair Trading with Alphabet and Smallcap World

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

The idea behind Alphabet Inc Class C and Smallcap World Fund 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 Commodity Directory module to find actively traded commodities issued by global exchanges.