Correlation Between Low-duration Bond and Small Cap
Can any of the company-specific risk be diversified away by investing in both Low-duration Bond 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 Low-duration Bond and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Low Duration Bond Institutional and Small Cap Equity, you can compare the effects of market volatilities on Low-duration Bond 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 Low-duration Bond with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Low-duration Bond and Small Cap.
Diversification Opportunities for Low-duration Bond and Small Cap
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Low-duration and Small is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Low Duration Bond Institutiona 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 Low-duration Bond 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 Low Duration Bond Institutional 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 Low-duration Bond i.e., Low-duration Bond and Small Cap go up and down completely randomly.
Pair Corralation between Low-duration Bond and Small Cap
Assuming the 90 days horizon Low-duration Bond is expected to generate 3.54 times less return on investment than Small Cap. But when comparing it to its historical volatility, Low Duration Bond Institutional is 10.14 times less risky than Small Cap. It trades about 0.17 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,601 in Small Cap Equity on August 31, 2024 and sell it today you would earn a total of 430.00 from holding Small Cap Equity or generate 26.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Low Duration Bond Institutiona vs. Small Cap Equity
Performance |
| Timeline |
| Low Duration Bond |
| Small Cap Equity |
Low-duration Bond and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Low-duration Bond and Small Cap
The main advantage of trading using opposite Low-duration Bond and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Low-duration Bond 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.| Low-duration Bond vs. Aqr Managed Futures | Low-duration Bond vs. Oklahoma College Savings | Low-duration Bond vs. American Funds Inflation | Low-duration Bond vs. Nationwide Inflation Protected Securities |
| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. T Rowe Price | Small Cap vs. HUMANA INC | Small Cap vs. SCOR PK |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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