Correlation Between Large Company and Small Company
Can any of the company-specific risk be diversified away by investing in both Large Company and Small Company 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 Large Company and Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Pany Value and Small Pany Fund, you can compare the effects of market volatilities on Large Company and Small Company 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 Large Company with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and Small Company.
Diversification Opportunities for Large Company and Small Company
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Large and Small is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund and Large Company 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 Large Pany Value are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of Large Company i.e., Large Company and Small Company go up and down completely randomly.
Pair Corralation between Large Company and Small Company
Assuming the 90 days horizon Large Company is expected to generate 3.54 times less return on investment than Small Company. But when comparing it to its historical volatility, Large Pany Value is 2.53 times less risky than Small Company. It trades about 0.13 of its potential returns per unit of risk. Small Pany Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 1,649 in Small Pany Fund on August 28, 2024 and sell it today you would earn a total of 104.00 from holding Small Pany Fund or generate 6.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Pany Value vs. Small Pany Fund
Performance |
| Timeline |
| Large Pany Value |
| Small Pany Fund |
Large Company and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Company and Small Company
The main advantage of trading using opposite Large Company and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Company position performs unexpectedly, Small Company 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 Company will offset losses from the drop in Small Company's long position.| Large Company vs. International Growth Fund | Large Company vs. Growth Fund Investor | Large Company vs. Ultra Fund Investor | Large Company vs. Strategic Allocation Aggressive |
| Small Company vs. Small Cap Value | Small Company vs. Real Estate Fund | Small Company vs. Emerging Markets Fund | Small Company vs. Equity Growth Fund |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
Other Complementary Tools
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. |