Correlation Between Small Cap and Short-term Government
Can any of the company-specific risk be diversified away by investing in both Small Cap and Short-term Government 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 Short-term Government 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 Short Term Government Fund, you can compare the effects of market volatilities on Small Cap and Short-term Government 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 Short-term Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Short-term Government.
Diversification Opportunities for Small Cap and Short-term Government
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Short-term is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Short Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Government 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 Short-term Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Government has no effect on the direction of Small Cap i.e., Small Cap and Short-term Government go up and down completely randomly.
Pair Corralation between Small Cap and Short-term Government
Assuming the 90 days horizon Small Cap Growth is expected to generate 6.8 times more return on investment than Short-term Government. However, Small Cap is 6.8 times more volatile than Short Term Government Fund. It trades about 0.07 of its potential returns per unit of risk. Short Term Government Fund is currently generating about 0.05 per unit of risk. If you would invest 1,421 in Small Cap Growth on September 5, 2024 and sell it today you would earn a total of 598.00 from holding Small Cap Growth or generate 42.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Small Cap Growth vs. Short Term Government Fund
Performance |
| Timeline |
| Small Cap Growth |
| Short Term Government |
Small Cap and Short-term Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Short-term Government
The main advantage of trading using opposite Small Cap and Short-term Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Short-term Government 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 Short-term Government will offset losses from the drop in Short-term Government's long position.| Small Cap vs. Northern Small Cap | Small Cap vs. Wasatch Small Cap | Small Cap vs. Sentinel Small Pany | Small Cap vs. Fidelity Advisor Diversified |
| Short-term Government vs. Allianzgi Health Sciences | Short-term Government vs. Eventide Healthcare Life | Short-term Government vs. Blackrock Health Sciences | Short-term Government vs. Deutsche Health And |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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