Correlation Between Apple and Small Cap
Can any of the company-specific risk be diversified away by investing in both Apple and Small Cap 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 Apple and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and Small Cap Core, you can compare the effects of market volatilities on Apple and Small Cap 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 Apple with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Small Cap.
Diversification Opportunities for Apple and Small Cap
Excellent diversification
The 3 months correlation between Apple and Small is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Apple 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 Apple Inc are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Apple i.e., Apple and Small Cap go up and down completely randomly.
Pair Corralation between Apple and Small Cap
Given the investment horizon of 90 days Apple Inc is expected to generate 0.97 times more return on investment than Small Cap. However, Apple Inc is 1.03 times less risky than Small Cap. It trades about 0.08 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.01 per unit of risk. If you would invest 14,392 in Apple Inc on October 23, 2024 and sell it today you would earn a total of 8,606 from holding Apple Inc or generate 59.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. Small Cap Core
Performance |
| Timeline |
| Apple Inc |
| Small Cap Core |
Apple and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Small Cap
The main advantage of trading using opposite Apple and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.The idea behind Apple Inc and Small Cap Core 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.| Small Cap vs. Aqr Managed Futures | Small Cap vs. Ab Bond Inflation | Small Cap vs. Tiaa Cref Inflation Link | Small Cap vs. Asg Managed Futures |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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