Correlation Between Small Cap and Income Growth
Can any of the company-specific risk be diversified away by investing in both Small Cap and Income Growth 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 Income Growth 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 Income Growth Fund, you can compare the effects of market volatilities on Small Cap and Income Growth 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 Income Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Income Growth.
Diversification Opportunities for Small Cap and Income Growth
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Income is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Income Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Growth 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 Income Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Growth has no effect on the direction of Small Cap i.e., Small Cap and Income Growth go up and down completely randomly.
Pair Corralation between Small Cap and Income Growth
Assuming the 90 days horizon Small Cap Growth is expected to generate 1.63 times more return on investment than Income Growth. However, Small Cap is 1.63 times more volatile than Income Growth Fund. It trades about 0.2 of its potential returns per unit of risk. Income Growth Fund is currently generating about -0.05 per unit of risk. If you would invest 2,334 in Small Cap Growth on September 18, 2024 and sell it today you would earn a total of 88.00 from holding Small Cap Growth or generate 3.77% 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. Income Growth Fund
Performance |
| Timeline |
| Small Cap Growth |
| Income Growth |
Small Cap and Income Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Income Growth
The main advantage of trading using opposite Small Cap and Income Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Income Growth 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 Income Growth will offset losses from the drop in Income Growth'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 |
| Income Growth vs. Heritage Fund Investor | Income Growth vs. Equity Growth Fund | Income Growth vs. Mid Cap Value |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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