Correlation Between CNH Industrial and Small Cap
Can any of the company-specific risk be diversified away by investing in both CNH Industrial 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 CNH Industrial and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CNH Industrial NV and Small Cap Core, you can compare the effects of market volatilities on CNH Industrial 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 CNH Industrial with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNH Industrial and Small Cap.
Diversification Opportunities for CNH Industrial and Small Cap
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between CNH and Small is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and CNH Industrial 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 CNH Industrial NV 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 Core has no effect on the direction of CNH Industrial i.e., CNH Industrial and Small Cap go up and down completely randomly.
Pair Corralation between CNH Industrial and Small Cap
Considering the 90-day investment horizon CNH Industrial NV is expected to generate 1.74 times more return on investment than Small Cap. However, CNH Industrial is 1.74 times more volatile than Small Cap Core. It trades about 0.13 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.13 per unit of risk. If you would invest 1,105 in CNH Industrial NV on August 24, 2024 and sell it today you would earn a total of 87.00 from holding CNH Industrial NV or generate 7.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CNH Industrial NV vs. Small Cap Core
Performance |
| Timeline |
| CNH Industrial NV |
| Small Cap Core |
CNH Industrial and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CNH Industrial and Small Cap
The main advantage of trading using opposite CNH Industrial and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNH Industrial 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.| CNH Industrial vs. Small Cap Core | CNH Industrial vs. Morningstar Unconstrained Allocation | CNH Industrial vs. Mutual Of America | CNH Industrial vs. Ep Emerging Markets |
| Small Cap vs. Vanguard Mid Cap Index | Small Cap vs. Vanguard Total Bond | Small Cap vs. Vanguard Institutional Index | Small Cap vs. Vanguard Total International |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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