Correlation Between Global Resources and Smallcap

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

By analyzing existing cross correlation between Global Resources Fund and Smallcap Sp 600, you can compare the effects of market volatilities on Global Resources and Smallcap 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 Global Resources with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Resources and Smallcap.

Diversification Opportunities for Global Resources and Smallcap

0.82

Correlation Coefficient

Global Resources  Smallcap

Very poor diversification

The 3 months correlation between Global and Smallcap is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Global Resources Fund and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Global Resources 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 Global Resources Fund are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Global Resources i.e., Global Resources and Smallcap go up and down completely randomly.

Pair Corralation between Global Resources and Smallcap

Assuming the 90 days horizon Global Resources Fund is expected to generate 0.81 times more return on investment than Smallcap. However, Global Resources Fund is 1.23 times less risky than Smallcap. It trades about 0.31 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.06 per unit of risk. If you would invest  382.00  in Global Resources Fund on May 10, 2025 and sell it today you would earn a total of  66.00  from holding Global Resources Fund or generate 17.28% return on investment over 90 days.

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

Global Resources Fund  vs.  Smallcap Sp 600

Global Resources

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Resources Fund are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Global Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Smallcap Sp 600

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Resources and Smallcap

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

The idea behind Global Resources Fund and Smallcap Sp 600 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 Stocks Directory module to find actively traded stocks across global markets.