Correlation Between Income Growth and Small Cap
Can any of the company-specific risk be diversified away by investing in both Income 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 Income 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 Income Growth Fund and Small Cap Growth, you can compare the effects of market volatilities on Income 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 Income Growth with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and Small Cap.
Diversification Opportunities for Income Growth and Small Cap
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Income and Small is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Income 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 Income 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 Income 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 Income Growth i.e., Income Growth and Small Cap go up and down completely randomly.
Pair Corralation between Income Growth and Small Cap
Assuming the 90 days horizon Income Growth is expected to generate 1.49 times less return on investment than Small Cap. But when comparing it to its historical volatility, Income Growth Fund is 1.49 times less risky than Small Cap. It trades about 0.07 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,665 in Small Cap Growth on September 13, 2024 and sell it today you would earn a total of 734.00 from holding Small Cap Growth or generate 44.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Growth Fund vs. Small Cap Growth
Performance |
| Timeline |
| Income Growth |
| Small Cap Growth |
Income Growth and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Growth and Small Cap
The main advantage of trading using opposite Income Growth and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income 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.| Income Growth vs. Ultra Fund I | Income Growth vs. Value Fund I | Income Growth vs. Equity Growth Fund | Income Growth vs. International Growth Fund |
| 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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