Correlation Between Small Cap and Value Equity
Can any of the company-specific risk be diversified away by investing in both Small Cap and Value Equity 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 Value Equity 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 Value Equity Institutional, you can compare the effects of market volatilities on Small Cap and Value Equity 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 Value Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Value Equity.
Diversification Opportunities for Small Cap and Value Equity
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Value is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Value Equity Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity 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 Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Institu has no effect on the direction of Small Cap i.e., Small Cap and Value Equity go up and down completely randomly.
Pair Corralation between Small Cap and Value Equity
Assuming the 90 days horizon Small Cap is expected to generate 1.27 times less return on investment than Value Equity. In addition to that, Small Cap is 1.45 times more volatile than Value Equity Institutional. It trades about 0.02 of its total potential returns per unit of risk. Value Equity Institutional is currently generating about 0.04 per unit of volatility. If you would invest 1,670 in Value Equity Institutional on November 19, 2024 and sell it today you would earn a total of 300.00 from holding Value Equity Institutional or generate 17.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Value Equity Institutional
Performance |
| Timeline |
| Small Cap Equity |
| Value Equity Institu |
Small Cap and Value Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Value Equity
The main advantage of trading using opposite Small Cap and Value Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Value Equity 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 Value Equity will offset losses from the drop in Value Equity's long position.| Small Cap vs. Tiaa Cref High Yield Fund | Small Cap vs. Voya High Yield | Small Cap vs. High Yield Fund | Small Cap vs. Jpmorgan High Yield |
| Value Equity vs. Gamco Global Gold | Value Equity vs. Jennison Natural Resources | Value Equity vs. Franklin Natural Resources | Value Equity vs. World Energy Fund |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
Other Complementary Tools
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes |