Correlation Between Small Cap and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Small Cap and Equity 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 Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Value and Equity Growth Fund, you can compare the effects of market volatilities on Small Cap and Equity 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 Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Equity Growth.
Diversification Opportunities for Small Cap and Equity Growth
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between SMALL and Equity is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity 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 Value are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Small Cap i.e., Small Cap and Equity Growth go up and down completely randomly.
Pair Corralation between Small Cap and Equity Growth
Assuming the 90 days horizon Small Cap is expected to generate 3.19 times less return on investment than Equity Growth. In addition to that, Small Cap is 1.6 times more volatile than Equity Growth Fund. It trades about 0.02 of its total potential returns per unit of risk. Equity Growth Fund is currently generating about 0.1 per unit of volatility. If you would invest 2,330 in Equity Growth Fund on November 2, 2024 and sell it today you would earn a total of 1,132 from holding Equity Growth Fund or generate 48.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. Equity Growth Fund
Performance |
| Timeline |
| Small Cap Value |
| Equity Growth |
Small Cap and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Equity Growth
The main advantage of trading using opposite Small Cap and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Equity 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Small Cap vs. Value Fund Investor | Small Cap vs. Small Pany Fund | Small Cap vs. Mid Cap Value | Small Cap vs. Equity Income Fund |
| Equity Growth vs. Income Growth Fund | Equity Growth vs. Equity Income Fund | Equity Growth vs. International Growth Fund | Equity Growth vs. Value Fund Investor |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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