Correlation Between Small Cap and American Funds
Can any of the company-specific risk be diversified away by investing in both Small Cap and American Funds 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 Funds 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 American Funds Retirement, you can compare the effects of market volatilities on Small Cap and American Funds 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 Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and American Funds.
Diversification Opportunities for Small Cap and American Funds
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SMALL and American is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Retirement has no effect on the direction of Small Cap i.e., Small Cap and American Funds go up and down completely randomly.
Pair Corralation between Small Cap and American Funds
Assuming the 90 days horizon Small Cap Value is expected to generate 2.08 times more return on investment than American Funds. However, Small Cap is 2.08 times more volatile than American Funds Retirement. It trades about 0.16 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.22 per unit of risk. If you would invest 1,043 in Small Cap Value on November 5, 2024 and sell it today you would earn a total of 30.00 from holding Small Cap Value or generate 2.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. American Funds Retirement
Performance |
| Timeline |
| Small Cap Value |
| American Funds Retirement |
Small Cap and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and American Funds
The main advantage of trading using opposite Small Cap and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, American Funds 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 Funds will offset losses from the drop in American Funds' 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 |
| American Funds vs. Siit Ultra Short | American Funds vs. Blackrock Short Obligations | American Funds vs. Oakhurst Short Duration | American Funds vs. Old Westbury Short Term |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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