Correlation Between Small Cap and Global Small
Can any of the company-specific risk be diversified away by investing in both Small Cap and Global Small 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 Global Small 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 Global Small Cap, you can compare the effects of market volatilities on Small Cap and Global Small 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 Global Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Global Small.
Diversification Opportunities for Small Cap and Global Small
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Global is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Global Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Small Cap 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 Global Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Small Cap has no effect on the direction of Small Cap i.e., Small Cap and Global Small go up and down completely randomly.
Pair Corralation between Small Cap and Global Small
Assuming the 90 days horizon Small Cap Growth is expected to generate 1.09 times more return on investment than Global Small. However, Small Cap is 1.09 times more volatile than Global Small Cap. It trades about 0.11 of its potential returns per unit of risk. Global Small Cap is currently generating about 0.08 per unit of risk. If you would invest 1,953 in Small Cap Growth on August 29, 2024 and sell it today you would earn a total of 352.00 from holding Small Cap Growth or generate 18.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. Global Small Cap
Performance |
| Timeline |
| Small Cap Growth |
| Global Small Cap |
Small Cap and Global Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Global Small
The main advantage of trading using opposite Small Cap and Global Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Global Small 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 Global Small will offset losses from the drop in Global Small's long position.| Small Cap vs. Focused Dynamic Growth | Small Cap vs. Heritage Fund Investor | Small Cap vs. Emerging Markets Fund | Small Cap vs. Small Cap Value |
| Global Small vs. Invesco Gold Special | Global Small vs. Gabelli Gold Fund | Global Small vs. Oppenheimer Gold Special | Global Small vs. Fidelity Advisor Gold |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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