Correlation Between Small Cap and Applied Finance
Can any of the company-specific risk be diversified away by investing in both Small Cap and Applied Finance 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 Applied Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Value Fund and Applied Finance Explorer, you can compare the effects of market volatilities on Small Cap and Applied Finance 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 Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Applied Finance.
Diversification Opportunities for Small Cap and Applied Finance
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Applied is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer 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 Fund are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Small Cap i.e., Small Cap and Applied Finance go up and down completely randomly.
Pair Corralation between Small Cap and Applied Finance
Assuming the 90 days horizon Small Cap is expected to generate 2.08 times less return on investment than Applied Finance. But when comparing it to its historical volatility, Small Cap Value Fund is 1.11 times less risky than Applied Finance. It trades about 0.02 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,695 in Applied Finance Explorer on September 28, 2024 and sell it today you would earn a total of 506.00 from holding Applied Finance Explorer or generate 29.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value Fund vs. Applied Finance Explorer
Performance |
| Timeline |
| Small Cap Value |
| Applied Finance Explorer |
Small Cap and Applied Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Applied Finance
The main advantage of trading using opposite Small Cap and Applied Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Applied Finance 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 Applied Finance will offset losses from the drop in Applied Finance's long position.The idea behind Small Cap Value Fund and Applied Finance Explorer pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Applied Finance vs. Thrivent Small Cap | Applied Finance vs. Applied Finance Select | Applied Finance vs. Parnassus Endeavor Fund | Applied Finance vs. Queens Road Small |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
Other Complementary Tools
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data |