Correlation Between Small Cap and Global Strategy

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

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

Diversification Opportunities for Small Cap and Global Strategy

-0.4

Correlation Coefficient

Small Cap  Global Strategy

Very good diversification

The 3 months correlation between Small and GLOBAL is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Special and Global Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Strategy and Small Cap 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 Small Cap Special are associated (or correlated) with Global Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Strategy has no effect on the direction of Small Cap i.e., Small Cap and Global Strategy go up and down completely randomly.

Pair Corralation between Small Cap and Global Strategy

Assuming the 90 days horizon Small Cap Special is expected to under-perform the Global Strategy. In addition to that, Small Cap is 2.24 times more volatile than Global Strategy Fund. It trades about -0.03 of its total potential returns per unit of risk. Global Strategy Fund is currently generating about 0.17 per unit of volatility. If you would invest  1,109  in Global Strategy Fund on September 8, 2025 and sell it today you would earn a total of  57.00  from holding Global Strategy Fund or generate 5.14% return on investment over 90 days.

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

Small Cap Special  vs.  Global Strategy Fund

Small Cap Special

Risk-Adjusted Performance

Weakest

Over the last 90 days Small Cap Special has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Strategy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Strategy Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Global Strategy

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

The idea behind Small Cap Special and Global Strategy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.