Correlation Between Small Cap and New Perspective
Can any of the company-specific risk be diversified away by investing in both Small Cap and New Perspective 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 New Perspective 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 New Perspective Fund, you can compare the effects of market volatilities on Small Cap and New Perspective 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 New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and New Perspective.
Diversification Opportunities for Small Cap and New Perspective
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and New is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Small Cap i.e., Small Cap and New Perspective go up and down completely randomly.
Pair Corralation between Small Cap and New Perspective
Assuming the 90 days horizon Small Cap Growth is expected to generate 2.13 times more return on investment than New Perspective. However, Small Cap is 2.13 times more volatile than New Perspective Fund. It trades about 0.32 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.2 per unit of risk. If you would invest 1,850 in Small Cap Growth on September 2, 2024 and sell it today you would earn a total of 173.00 from holding Small Cap Growth or generate 9.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. New Perspective Fund
Performance |
| Timeline |
| Small Cap Growth |
| New Perspective |
Small Cap and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and New Perspective
The main advantage of trading using opposite Small Cap and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective's long position.| Small Cap vs. Artisan High Income | Small Cap vs. Multisector Bond Sma | Small Cap vs. Maryland Tax Free Bond | Small Cap vs. Calamos Dynamic Convertible |
| New Perspective vs. Target Retirement 2040 | New Perspective vs. Franklin Lifesmart Retirement | New Perspective vs. Fidelity Managed Retirement | New Perspective vs. Calvert Moderate Allocation |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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