Correlation Between Small Cap and American High-income
Can any of the company-specific risk be diversified away by investing in both Small Cap and American High-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 American High-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 American High Income Municipal, you can compare the effects of market volatilities on Small Cap and American High-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 American High-income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and American High-income.
Diversification Opportunities for Small Cap and American High-income
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SMALL and American is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and American High Income Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American High 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 American High-income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American High Income has no effect on the direction of Small Cap i.e., Small Cap and American High-income go up and down completely randomly.
Pair Corralation between Small Cap and American High-income
Assuming the 90 days horizon Small Cap Growth is expected to generate 3.63 times more return on investment than American High-income. However, Small Cap is 3.63 times more volatile than American High Income Municipal. It trades about 0.38 of its potential returns per unit of risk. American High Income Municipal is currently generating about 0.03 per unit of risk. If you would invest 1,878 in Small Cap Growth on October 29, 2024 and sell it today you would earn a total of 122.00 from holding Small Cap Growth or generate 6.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. American High Income Municipal
Performance |
| Timeline |
| Small Cap Growth |
| American High Income |
Small Cap and American High-income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and American High-income
The main advantage of trading using opposite Small Cap and American High-income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, American High-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 American High-income will offset losses from the drop in American High-income'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 |
| American High-income vs. Rational Defensive Growth | American High-income vs. Vy Baron Growth | American High-income vs. The Hartford Growth | American High-income vs. Riverparknext Century Growth |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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