Correlation Between Secured Options and Small Cap
Can any of the company-specific risk be diversified away by investing in both Secured Options 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 Secured Options and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Secured Options Portfolio and Small Cap Equity, you can compare the effects of market volatilities on Secured Options 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 Secured Options with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Secured Options and Small Cap.
Diversification Opportunities for Secured Options and Small Cap
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Secured and Small is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Secured Options Portfolio 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 Secured Options 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 Secured Options Portfolio 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 Secured Options i.e., Secured Options and Small Cap go up and down completely randomly.
Pair Corralation between Secured Options and Small Cap
Assuming the 90 days horizon Secured Options is expected to generate 1.28 times less return on investment than Small Cap. But when comparing it to its historical volatility, Secured Options Portfolio is 3.54 times less risky than Small Cap. It trades about 0.14 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,850 in Small Cap Equity on August 26, 2024 and sell it today you would earn a total of 725.00 from holding Small Cap Equity or generate 25.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Secured Options Portfolio vs. Small Cap Equity
Performance |
| Timeline |
| Secured Options Portfolio |
| Small Cap Equity |
Secured Options and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Secured Options and Small Cap
The main advantage of trading using opposite Secured Options and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Secured Options 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.| Secured Options vs. Glenmede International Secured | Secured Options vs. Equity Income Portfolio | Secured Options vs. Woman In Leadership | Secured Options vs. Responsible Esg Equity |
| Small Cap vs. Large Cap Growth | Small Cap vs. Lazard International Strategic | Small Cap vs. Equity Income Fund | Small Cap vs. Large Cap E |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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