Correlation Between Small Cap and Strategic Income
Can any of the company-specific risk be diversified away by investing in both Small Cap and Strategic Income 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 Strategic Income 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 Strategic Income Fund, you can compare the effects of market volatilities on Small Cap and Strategic Income 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 Strategic Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Strategic Income.
Diversification Opportunities for Small Cap and Strategic Income
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Strategic is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Strategic Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Income 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 Strategic Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Income has no effect on the direction of Small Cap i.e., Small Cap and Strategic Income go up and down completely randomly.
Pair Corralation between Small Cap and Strategic Income
Assuming the 90 days horizon Small Cap Growth is expected to generate 6.54 times more return on investment than Strategic Income. However, Small Cap is 6.54 times more volatile than Strategic Income Fund. It trades about 0.3 of its potential returns per unit of risk. Strategic Income Fund is currently generating about 0.13 per unit of risk. If you would invest 2,228 in Small Cap Growth on September 4, 2024 and sell it today you would earn a total of 198.00 from holding Small Cap Growth or generate 8.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Small Cap Growth vs. Strategic Income Fund
Performance |
| Timeline |
| Small Cap Growth |
| Strategic Income |
Small Cap and Strategic Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Strategic Income
The main advantage of trading using opposite Small Cap and Strategic Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Strategic Income 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 Strategic Income will offset losses from the drop in Strategic Income's long position.| Small Cap vs. Prudential Jennison Financial | Small Cap vs. Vanguard Financials Index | Small Cap vs. Blackrock Financial Institutions | Small Cap vs. Fidelity Advisor Financial |
| Strategic Income vs. Short Duration Strategic | Strategic Income vs. Short Duration Fund | Strategic Income vs. High Yield Municipal Fund | Strategic Income vs. Emerging Markets Debt |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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