Correlation Between Equity Growth and Small Cap
Can any of the company-specific risk be diversified away by investing in both Equity Growth 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 Equity Growth and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Growth Fund and Small Cap Growth, you can compare the effects of market volatilities on Equity Growth 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 Equity Growth with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Small Cap.
Diversification Opportunities for Equity Growth and Small Cap
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Equity and Small is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Equity Growth 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 Equity Growth Fund 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 Growth has no effect on the direction of Equity Growth i.e., Equity Growth and Small Cap go up and down completely randomly.
Pair Corralation between Equity Growth and Small Cap
Assuming the 90 days horizon Equity Growth Fund is expected to generate 39.71 times more return on investment than Small Cap. However, Equity Growth is 39.71 times more volatile than Small Cap Growth. It trades about 0.04 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.07 per unit of risk. If you would invest 2,197 in Equity Growth Fund on September 5, 2024 and sell it today you would earn a total of 1,280 from holding Equity Growth Fund or generate 58.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. Small Cap Growth
Performance |
| Timeline |
| Equity Growth |
| Small Cap Growth |
Equity Growth and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and Small Cap
The main advantage of trading using opposite Equity Growth and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth 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.| Equity Growth vs. Income Growth Fund | Equity Growth vs. Equity Income Fund | Equity Growth vs. International Growth Fund | Equity Growth vs. Value Fund Investor |
| Small Cap vs. Mid Cap Value | Small Cap vs. Equity Growth Fund | Small Cap vs. Income Growth Fund | Small Cap vs. Diversified Bond 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
Other Complementary Tools
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Transaction History View history of all your transactions and understand their impact on performance |