Correlation Between California High and Small Cap
Can any of the company-specific risk be diversified away by investing in both California High and Small Cap 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 California High and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California High Yield Municipal and Small Cap Special, you can compare the effects of market volatilities on California High and Small Cap 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 California High with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of California High and Small Cap.
Diversification Opportunities for California High and Small Cap
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between California and Small is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Small Cap Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Special and California High 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 California High Yield Municipal are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Special has no effect on the direction of California High i.e., California High and Small Cap go up and down completely randomly.
Pair Corralation between California High and Small Cap
Assuming the 90 days horizon California High is expected to generate 2.26 times less return on investment than Small Cap. But when comparing it to its historical volatility, California High Yield Municipal is 5.22 times less risky than Small Cap. It trades about 0.14 of its potential returns per unit of risk. Small Cap Special is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,226 in Small Cap Special on August 24, 2024 and sell it today you would earn a total of 108.00 from holding Small Cap Special or generate 8.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
California High Yield Municipa vs. Small Cap Special
Performance |
| Timeline |
| California High Yield |
| Small Cap Special |
California High and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California High and Small Cap
The main advantage of trading using opposite California High and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| California High vs. T Rowe Price | California High vs. Legg Mason Partners | California High vs. Blackrock Lifepath Dynamic | California High vs. Franklin Lifesmart 2050 |
| Small Cap vs. Artisan High Income | Small Cap vs. Fa 529 Aggressive | Small Cap vs. Ab High Income | Small Cap vs. California High Yield Municipal |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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