Correlation Between Small Cap and International Portfolio

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

Diversification Opportunities for Small Cap and International Portfolio

0.81

Correlation Coefficient

Small Cap  International Portfolio

Very poor diversification

The 3 months correlation between Small and International is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and International Portfolio Intern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Portfolio 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 International Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Portfolio has no effect on the direction of Small Cap i.e., Small Cap and International Portfolio go up and down completely randomly.

Pair Corralation between Small Cap and International Portfolio

Assuming the 90 days horizon Small Cap Equity is expected to generate 2.08 times more return on investment than International Portfolio. However, Small Cap is 2.08 times more volatile than International Portfolio International. It trades about 0.12 of its potential returns per unit of risk. International Portfolio International is currently generating about 0.23 per unit of risk. If you would invest  2,790  in Small Cap Equity on May 1, 2025 and sell it today you would earn a total of  255.00  from holding Small Cap Equity or generate 9.14% return on investment over 90 days.

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

Small Cap Equity  vs.  International Portfolio Intern

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 9 (%) 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 August 2025.

International Portfolio

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Portfolio International are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, International Portfolio may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Small Cap and International Portfolio

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

The idea behind Small Cap Equity and International Portfolio International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.