Correlation Between Smallcap and Global Resources

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

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

Diversification Opportunities for Smallcap and Global Resources

0.85

Correlation Coefficient

Smallcap  Global Resources

Very poor diversification

The 3 months correlation between Smallcap and Global is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and Global Resources Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Resources and Smallcap 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 Smallcap Sp 600 are associated (or correlated) with Global Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Resources has no effect on the direction of Smallcap i.e., Smallcap and Global Resources go up and down completely randomly.

Pair Corralation between Smallcap and Global Resources

Assuming the 90 days horizon Smallcap is expected to generate 1.5 times less return on investment than Global Resources. In addition to that, Smallcap is 1.26 times more volatile than Global Resources Fund. It trades about 0.12 of its total potential returns per unit of risk. Global Resources Fund is currently generating about 0.22 per unit of volatility. If you would invest  376.00  in Global Resources Fund on May 5, 2025 and sell it today you would earn a total of  49.00  from holding Global Resources Fund or generate 13.03% return on investment over 90 days.

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

Smallcap Sp 600  vs.  Global Resources Fund

Smallcap Sp 600

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Smallcap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

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 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Global Resources may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Smallcap and Global Resources

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

The idea behind Smallcap Sp 600 and Global Resources 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 Transaction History module to view history of all your transactions and understand their impact on performance.