Correlation Between Small Cap and The Bond
Can any of the company-specific risk be diversified away by investing in both Small Cap and The Bond 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 and The Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Equity and The Bond Fund, you can compare the effects of market volatilities on Small Cap and The Bond 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 with a short position of The Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and The Bond.
Diversification Opportunities for Small Cap and The Bond
Weak diversification
The 3 months correlation between Small and The is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and The Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund and Small Cap 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 Equity are associated (or correlated) with The Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund has no effect on the direction of Small Cap i.e., Small Cap and The Bond go up and down completely randomly.
Pair Corralation between Small Cap and The Bond
Assuming the 90 days horizon Small Cap Equity is expected to under-perform the The Bond. In addition to that, Small Cap is 4.21 times more volatile than The Bond Fund. It trades about -0.23 of its total potential returns per unit of risk. The Bond Fund is currently generating about -0.49 per unit of volatility. If you would invest 1,797 in The Bond Fund on October 11, 2024 and sell it today you would lose (45.00) from holding The Bond Fund or give up 2.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. The Bond Fund
Performance |
| Timeline |
| Small Cap Equity |
| Bond Fund |
Small Cap and The Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and The Bond
The main advantage of trading using opposite Small Cap and The Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, The Bond 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 The Bond will offset losses from the drop in The Bond's long position.| Small Cap vs. James Balanced Golden | Small Cap vs. International Investors Gold | Small Cap vs. Deutsche Gold Precious | Small Cap vs. Oppenheimer Gold Special |
| The Bond vs. Small Cap Equity | The Bond vs. Ab Equity Income | The Bond vs. Ab Select Equity | The Bond vs. Locorr Dynamic Equity |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
Other Complementary Tools
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes |