Correlation Between Small-cap Value and Ultra-small Company
Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Ultra-small Company 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 Value and Ultra-small Company 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 Ultra Small Pany Fund, you can compare the effects of market volatilities on Small-cap Value and Ultra-small Company 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 Value with a short position of Ultra-small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Ultra-small Company.
Diversification Opportunities for Small-cap Value and Ultra-small Company
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small-cap and Ultra-small is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Ultra Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra-small Company and Small-cap Value 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 Ultra-small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra-small Company has no effect on the direction of Small-cap Value i.e., Small-cap Value and Ultra-small Company go up and down completely randomly.
Pair Corralation between Small-cap Value and Ultra-small Company
Assuming the 90 days horizon Small-cap Value is expected to generate 1.14 times less return on investment than Ultra-small Company. But when comparing it to its historical volatility, Small Cap Value Fund is 1.05 times less risky than Ultra-small Company. It trades about 0.09 of its potential returns per unit of risk. Ultra Small Pany Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,242 in Ultra Small Pany Fund on August 25, 2024 and sell it today you would earn a total of 1,030 from holding Ultra Small Pany Fund or generate 45.94% 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. Ultra Small Pany Fund
Performance |
| Timeline |
| Small Cap Value |
| Ultra-small Company |
Small-cap Value and Ultra-small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-cap Value and Ultra-small Company
The main advantage of trading using opposite Small-cap Value and Ultra-small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value position performs unexpectedly, Ultra-small Company 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 Ultra-small Company will offset losses from the drop in Ultra-small Company's long position.| Small-cap Value vs. Morgan Stanley Government | Small-cap Value vs. Cref Money Market | Small-cap Value vs. Transamerica Funds | Small-cap Value vs. Legg Mason Partners |
| Ultra-small Company vs. Aggressive Investors 1 | Ultra-small Company vs. Managed Volatility Fund | Ultra-small Company vs. Small Cap Value Fund |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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