Correlation Between Small Cap and Floating Rate
Can any of the company-specific risk be diversified away by investing in both Small Cap and Floating Rate 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 Floating Rate 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 Floating Rate Fund, you can compare the effects of market volatilities on Small Cap and Floating Rate 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 Floating Rate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Floating Rate.
Diversification Opportunities for Small Cap and Floating Rate
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Floating is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Floating Rate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate 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 Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate has no effect on the direction of Small Cap i.e., Small Cap and Floating Rate go up and down completely randomly.
Pair Corralation between Small Cap and Floating Rate
Assuming the 90 days horizon Small Cap is expected to generate 1.1 times less return on investment than Floating Rate. In addition to that, Small Cap is 7.16 times more volatile than Floating Rate Fund. It trades about 0.03 of its total potential returns per unit of risk. Floating Rate Fund is currently generating about 0.25 per unit of volatility. If you would invest 739.00 in Floating Rate Fund on October 22, 2024 and sell it today you would earn a total of 79.00 from holding Floating Rate Fund or generate 10.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. Floating Rate Fund
Performance |
| Timeline |
| Small Cap Value |
| Floating Rate |
Small Cap and Floating Rate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Floating Rate
The main advantage of trading using opposite Small Cap and Floating Rate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Floating Rate 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 Floating Rate will offset losses from the drop in Floating Rate's long position.| Small Cap vs. Alpine Ultra Short | Small Cap vs. Oakhurst Short Duration | Small Cap vs. Aqr Sustainable Long Short | Small Cap vs. Baird Short Term Bond |
| Floating Rate vs. Small Cap Stock | Floating Rate vs. Shelton Funds | Floating Rate vs. Aqr Diversified Arbitrage | Floating Rate vs. Ab Small Cap |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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