Correlation Between Small Cap and Harding Loevner
Can any of the company-specific risk be diversified away by investing in both Small Cap and Harding Loevner 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 Harding Loevner 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 Harding Loevner Frontier, you can compare the effects of market volatilities on Small Cap and Harding Loevner 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 Harding Loevner. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Harding Loevner.
Diversification Opportunities for Small Cap and Harding Loevner
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Harding is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Harding Loevner Frontier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harding Loevner Frontier 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 Harding Loevner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harding Loevner Frontier has no effect on the direction of Small Cap i.e., Small Cap and Harding Loevner go up and down completely randomly.
Pair Corralation between Small Cap and Harding Loevner
Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Harding Loevner. In addition to that, Small Cap is 3.11 times more volatile than Harding Loevner Frontier. It trades about -0.17 of its total potential returns per unit of risk. Harding Loevner Frontier is currently generating about -0.08 per unit of volatility. If you would invest 828.00 in Harding Loevner Frontier on September 12, 2024 and sell it today you would lose (7.00) from holding Harding Loevner Frontier or give up 0.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Harding Loevner Frontier
Performance |
| Timeline |
| Small Cap Equity |
| Harding Loevner Frontier |
Small Cap and Harding Loevner Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Harding Loevner
The main advantage of trading using opposite Small Cap and Harding Loevner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Harding Loevner 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 Harding Loevner will offset losses from the drop in Harding Loevner's long position.| Small Cap vs. Elfun Government Money | Small Cap vs. General Money Market | Small Cap vs. Ubs Money Series | Small Cap vs. Schwab Treasury Money |
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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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