Correlation Between International Small and Largecap

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

By analyzing existing cross correlation between International Small Pany and Largecap Sp 500, you can compare the effects of market volatilities on International Small and Largecap 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 International Small with a short position of Largecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Small and Largecap.

Diversification Opportunities for International Small and Largecap

0.92

Correlation Coefficient

International Small  Largecap

Almost no diversification

The 3 months correlation between International and Largecap is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding International Small Pany and Largecap Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Sp 500 and International Small 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 International Small Pany are associated (or correlated) with Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Sp 500 has no effect on the direction of International Small i.e., International Small and Largecap go up and down completely randomly.

Pair Corralation between International Small and Largecap

Assuming the 90 days horizon International Small is expected to generate 1.64 times less return on investment than Largecap. But when comparing it to its historical volatility, International Small Pany is 1.08 times less risky than Largecap. It trades about 0.18 of its potential returns per unit of risk. Largecap Sp 500 is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,728  in Largecap Sp 500 on May 5, 2025 and sell it today you would earn a total of  340.00  from holding Largecap Sp 500 or generate 12.46% return on investment over 90 days.

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

International Small Pany  vs.  Largecap Sp 500

International Small Pany

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Small Pany are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, International Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Largecap Sp 500

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Sp 500 are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Largecap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with International Small and Largecap

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

The idea behind International Small Pany and Largecap Sp 500 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.