Correlation Between Small Cap and Inflation Adjusted
Can any of the company-specific risk be diversified away by investing in both Small Cap and Inflation Adjusted 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 Inflation Adjusted into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Growth and Inflation Adjusted Bond Fund, you can compare the effects of market volatilities on Small Cap and Inflation Adjusted 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 Inflation Adjusted. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Inflation Adjusted.
Diversification Opportunities for Small Cap and Inflation Adjusted
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Inflation is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Inflation Adjusted Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Adjusted Bond 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 Growth are associated (or correlated) with Inflation Adjusted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Adjusted Bond has no effect on the direction of Small Cap i.e., Small Cap and Inflation Adjusted go up and down completely randomly.
Pair Corralation between Small Cap and Inflation Adjusted
Assuming the 90 days horizon Small Cap Growth is expected to generate 3.39 times more return on investment than Inflation Adjusted. However, Small Cap is 3.39 times more volatile than Inflation Adjusted Bond Fund. It trades about 0.1 of its potential returns per unit of risk. Inflation Adjusted Bond Fund is currently generating about 0.06 per unit of risk. If you would invest 1,636 in Small Cap Growth on September 19, 2024 and sell it today you would earn a total of 617.00 from holding Small Cap Growth or generate 37.71% 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 Growth vs. Inflation Adjusted Bond Fund
Performance |
| Timeline |
| Small Cap Growth |
| Inflation Adjusted Bond |
Small Cap and Inflation Adjusted Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Inflation Adjusted
The main advantage of trading using opposite Small Cap and Inflation Adjusted positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Inflation Adjusted 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 Inflation Adjusted will offset losses from the drop in Inflation Adjusted's long position.| Small Cap vs. Mid Cap Value | Small Cap vs. Equity Growth Fund | Small Cap vs. Income Growth Fund | Small Cap vs. Diversified Bond Fund |
| Inflation Adjusted vs. Mid Cap Value | Inflation Adjusted vs. Equity Growth Fund | Inflation Adjusted vs. Income Growth Fund | Inflation Adjusted 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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