Correlation Between Small Cap and Abrdn Emerging

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

By analyzing existing cross correlation between Small Cap Equity and Abrdn Emerging Markets, you can compare the effects of market volatilities on Small Cap and Abrdn 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 Small Cap with a short position of Abrdn Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Abrdn Emerging.

Diversification Opportunities for Small Cap and Abrdn Emerging

0.6

Correlation Coefficient

Small Cap  Abrdn Emerging

Poor diversification

The 3 months correlation between Small and Abrdn is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Abrdn Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abrdn Emerging Markets and Small Cap 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 Small Cap Equity are associated (or correlated) with Abrdn Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abrdn Emerging Markets has no effect on the direction of Small Cap i.e., Small Cap and Abrdn Emerging go up and down completely randomly.

Pair Corralation between Small Cap and Abrdn Emerging

Assuming the 90 days horizon Small Cap is expected to generate 2.05 times less return on investment than Abrdn Emerging. But when comparing it to its historical volatility, Small Cap Equity is 1.14 times less risky than Abrdn Emerging. It trades about 0.1 of its potential returns per unit of risk. Abrdn Emerging Markets is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  534.00  in Abrdn Emerging Markets on May 4, 2025 and sell it today you would earn a total of  70.00  from holding Abrdn Emerging Markets or generate 13.11% return on investment over 90 days.

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

Small Cap Equity  vs.  Abrdn Emerging Markets

Small Cap Equity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Abrdn Emerging Markets

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Abrdn Emerging Markets are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Abrdn Emerging reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Abrdn Emerging

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

The idea behind Small Cap Equity and Abrdn Emerging Markets 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.