Correlation Between Bright Rock and Small Cap
Can any of the company-specific risk be diversified away by investing in both Bright Rock 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 Bright Rock and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bright Rock Quality and Small Cap Equity, you can compare the effects of market volatilities on Bright Rock 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 Bright Rock with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bright Rock and Small Cap.
Diversification Opportunities for Bright Rock and Small Cap
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bright and Small is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Bright Rock Quality and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Bright Rock 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 Bright Rock Quality 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 Equity has no effect on the direction of Bright Rock i.e., Bright Rock and Small Cap go up and down completely randomly.
Pair Corralation between Bright Rock and Small Cap
Assuming the 90 days horizon Bright Rock Quality is expected to generate 0.51 times more return on investment than Small Cap. However, Bright Rock Quality is 1.97 times less risky than Small Cap. It trades about 0.12 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.05 per unit of risk. If you would invest 1,938 in Bright Rock Quality on September 12, 2024 and sell it today you would earn a total of 545.00 from holding Bright Rock Quality or generate 28.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bright Rock Quality vs. Small Cap Equity
Performance |
| Timeline |
| Bright Rock Quality |
| Small Cap Equity |
Bright Rock and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bright Rock and Small Cap
The main advantage of trading using opposite Bright Rock and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bright Rock 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.| Bright Rock vs. Touchstone Premium Yield | Bright Rock vs. Franklin High Yield | Bright Rock vs. Pace High Yield | Bright Rock vs. The National Tax Free |
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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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