Correlation Between Small Cap and Equity Index
Can any of the company-specific risk be diversified away by investing in both Small Cap and Equity Index 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 Equity Index 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 Equity Index Institutional, you can compare the effects of market volatilities on Small Cap and Equity Index 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 Equity Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Equity Index.
Diversification Opportunities for Small Cap and Equity Index
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Equity is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Equity Index Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Index Institu 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 Equity Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Index Institu has no effect on the direction of Small Cap i.e., Small Cap and Equity Index go up and down completely randomly.
Pair Corralation between Small Cap and Equity Index
Assuming the 90 days horizon Small Cap is expected to generate 1.27 times less return on investment than Equity Index. In addition to that, Small Cap is 1.51 times more volatile than Equity Index Institutional. It trades about 0.06 of its total potential returns per unit of risk. Equity Index Institutional is currently generating about 0.12 per unit of volatility. If you would invest 4,426 in Equity Index Institutional on September 1, 2024 and sell it today you would earn a total of 1,745 from holding Equity Index Institutional or generate 39.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Small Cap Equity vs. Equity Index Institutional
Performance |
| Timeline |
| Small Cap Equity |
| Equity Index Institu |
Small Cap and Equity Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Equity Index
The main advantage of trading using opposite Small Cap and Equity Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Equity Index 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 Equity Index will offset losses from the drop in Equity Index's long position.| Small Cap vs. Arrow Managed Futures | Small Cap vs. Volumetric Fund Volumetric | Small Cap vs. T Rowe Price | Small Cap vs. Abr 7525 Volatility |
| Equity Index vs. Guidestone Fds Growth | Equity Index vs. Small Cap Equity | Equity Index vs. Value Equity Institutional | Equity Index vs. Medium Duration Bond Institutional |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
Other Complementary Tools
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities |