Correlation Between Touchstone Large and Smallcap World

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

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

Diversification Opportunities for Touchstone Large and Smallcap World

0.78

Correlation Coefficient

Touchstone Large  Smallcap World

Poor diversification

The 3 months correlation between Touchstone and Smallcap is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Large Pany and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Touchstone Large 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 Touchstone Large Pany are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Touchstone Large i.e., Touchstone Large and Smallcap World go up and down completely randomly.

Pair Corralation between Touchstone Large and Smallcap World

Assuming the 90 days horizon Touchstone Large Pany is expected to generate 1.36 times more return on investment than Smallcap World. However, Touchstone Large is 1.36 times more volatile than Smallcap World Fund. It trades about 0.45 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.37 per unit of risk. If you would invest  4,659  in Touchstone Large Pany on April 21, 2025 and sell it today you would earn a total of  1,682  from holding Touchstone Large Pany or generate 36.1% return on investment over 90 days.

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

Touchstone Large Pany  vs.  Smallcap World Fund

Touchstone Large Pany

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Large Pany are ranked lower than 35 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Touchstone Large showed solid returns over the last few months and may actually be approaching a breakup point.

Smallcap World

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 28 (%) 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.

Pair Trading with Touchstone Large and Smallcap World

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

The idea behind Touchstone Large Pany and Smallcap World 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.