Correlation Between Small Cap and Parametric Intl
Can any of the company-specific risk be diversified away by investing in both Small Cap and Parametric Intl 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 Parametric Intl 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 Parametric Intl Equity, you can compare the effects of market volatilities on Small Cap and Parametric Intl 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 Parametric Intl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Parametric Intl.
Diversification Opportunities for Small Cap and Parametric Intl
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Parametric is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Parametric Intl Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Intl Equity 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 Parametric Intl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Intl Equity has no effect on the direction of Small Cap i.e., Small Cap and Parametric Intl go up and down completely randomly.
Pair Corralation between Small Cap and Parametric Intl
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.67 times more return on investment than Parametric Intl. However, Small Cap is 1.67 times more volatile than Parametric Intl Equity. It trades about 0.08 of its potential returns per unit of risk. Parametric Intl Equity is currently generating about 0.04 per unit of risk. If you would invest 1,613 in Small Cap Equity on August 27, 2024 and sell it today you would earn a total of 369.00 from holding Small Cap Equity or generate 22.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Parametric Intl Equity
Performance |
| Timeline |
| Small Cap Equity |
| Parametric Intl Equity |
Small Cap and Parametric Intl Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Parametric Intl
The main advantage of trading using opposite Small Cap and Parametric Intl positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Parametric Intl 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 Parametric Intl will offset losses from the drop in Parametric Intl's long position.| Small Cap vs. Dreyfus Technology Growth | Small Cap vs. Invesco Technology Fund | Small Cap vs. Allianzgi Technology Fund | Small Cap vs. Hennessy Technology Fund |
| Parametric Intl vs. Small Cap Equity | Parametric Intl vs. Federated Equity Income | Parametric Intl vs. Gmo Global Equity | Parametric Intl vs. Balanced Fund Retail |
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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