Correlation Between Quantitative and Small Cap
Can any of the company-specific risk be diversified away by investing in both Quantitative 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 Quantitative and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Quantitative U S and Small Cap Equity, you can compare the effects of market volatilities on Quantitative 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 Quantitative with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quantitative and Small Cap.
Diversification Opportunities for Quantitative and Small Cap
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Quantitative and Small is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Quantitative U S 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 Quantitative 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 Quantitative U S 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 Quantitative i.e., Quantitative and Small Cap go up and down completely randomly.
Pair Corralation between Quantitative and Small Cap
Assuming the 90 days horizon Quantitative U S is expected to generate 1.01 times more return on investment than Small Cap. However, Quantitative is 1.01 times more volatile than Small Cap Equity. It trades about 0.09 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.05 per unit of risk. If you would invest 1,271 in Quantitative U S on August 29, 2024 and sell it today you would earn a total of 423.00 from holding Quantitative U S or generate 33.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Quantitative U S vs. Small Cap Equity
Performance |
| Timeline |
| Quantitative U S |
| Small Cap Equity |
Quantitative and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Quantitative and Small Cap
The main advantage of trading using opposite Quantitative and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quantitative 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.| Quantitative vs. Dunham Large Cap | Quantitative vs. Aqr Large Cap | Quantitative vs. Fidelity Series 1000 | Quantitative vs. Qs Large Cap |
| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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