Correlation Between Smallcap World and Catalystmillburn

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

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

Diversification Opportunities for Smallcap World and Catalystmillburn

0.96

Correlation Coefficient

Smallcap World  Catalystmillburn

Almost no diversification

The 3 months correlation between Smallcap and Catalystmillburn is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Catalystmillburn Hedge Strateg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalystmillburn Hedge and Smallcap World 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 World Fund are associated (or correlated) with Catalystmillburn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalystmillburn Hedge has no effect on the direction of Smallcap World i.e., Smallcap World and Catalystmillburn go up and down completely randomly.

Pair Corralation between Smallcap World and Catalystmillburn

Assuming the 90 days horizon Smallcap World Fund is expected to generate 1.47 times more return on investment than Catalystmillburn. However, Smallcap World is 1.47 times more volatile than Catalystmillburn Hedge Strategy. It trades about 0.3 of its potential returns per unit of risk. Catalystmillburn Hedge Strategy is currently generating about 0.22 per unit of risk. If you would invest  6,305  in Smallcap World Fund on April 29, 2025 and sell it today you would earn a total of  952.00  from holding Smallcap World Fund or generate 15.1% return on investment over 90 days.

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

Smallcap World Fund  vs.  Catalystmillburn Hedge Strateg

Smallcap World

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Smallcap World showed solid returns over the last few months and may actually be approaching a breakup point.

Catalystmillburn Hedge

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Catalystmillburn Hedge Strategy are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Catalystmillburn may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Smallcap World and Catalystmillburn

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

The idea behind Smallcap World Fund and Catalystmillburn Hedge Strategy 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.