Correlation Between Small-cap Value and World Energy

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

By analyzing existing cross correlation between Small Cap Value Series and World Energy Fund, you can compare the effects of market volatilities on Small-cap Value and World Energy 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 Value with a short position of World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and World Energy.

Diversification Opportunities for Small-cap Value and World Energy

0.82

Correlation Coefficient

Small-cap Value  World Energy

Very poor diversification

The 3 months correlation between Small-cap and World is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy and Small-cap Value 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 Value Series are associated (or correlated) with World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Small-cap Value i.e., Small-cap Value and World Energy go up and down completely randomly.

Pair Corralation between Small-cap Value and World Energy

Assuming the 90 days horizon Small-cap Value is expected to generate 2.34 times less return on investment than World Energy. But when comparing it to its historical volatility, Small Cap Value Series is 1.02 times less risky than World Energy. It trades about 0.06 of its potential returns per unit of risk. World Energy Fund is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,514  in World Energy Fund on May 13, 2025 and sell it today you would earn a total of  127.00  from holding World Energy Fund or generate 8.39% return on investment over 90 days.

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

Small Cap Value Series  vs.  World Energy Fund

Small Cap Value

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Series are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Small-cap Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Energy

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Small-cap Value and World Energy

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

The idea behind Small Cap Value Series and World Energy 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.