Correlation Between Small Cap and Strategic Asset
Can any of the company-specific risk be diversified away by investing in both Small Cap and Strategic Asset 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 Strategic Asset 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 Strategic Asset Management, you can compare the effects of market volatilities on Small Cap and Strategic Asset 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 Strategic Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Strategic Asset.
Diversification Opportunities for Small Cap and Strategic Asset
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Strategic is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Strategic Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Asset Mana 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 Strategic Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Asset Mana has no effect on the direction of Small Cap i.e., Small Cap and Strategic Asset go up and down completely randomly.
Pair Corralation between Small Cap and Strategic Asset
Assuming the 90 days horizon Small Cap Value is expected to generate 3.18 times more return on investment than Strategic Asset. However, Small Cap is 3.18 times more volatile than Strategic Asset Management. It trades about 0.27 of its potential returns per unit of risk. Strategic Asset Management is currently generating about 0.39 per unit of risk. If you would invest 985.00 in Small Cap Value on September 2, 2024 and sell it today you would earn a total of 99.00 from holding Small Cap Value or generate 10.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. Strategic Asset Management
Performance |
| Timeline |
| Small Cap Value |
| Strategic Asset Mana |
Small Cap and Strategic Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Strategic Asset
The main advantage of trading using opposite Small Cap and Strategic Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Strategic Asset 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 Strategic Asset will offset losses from the drop in Strategic Asset'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 |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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