Correlation Between Small Cap and Fundamental Large
Can any of the company-specific risk be diversified away by investing in both Small Cap and Fundamental Large 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 Fundamental Large 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 Fundamental Large Cap, you can compare the effects of market volatilities on Small Cap and Fundamental Large 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 Fundamental Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Fundamental Large.
Diversification Opportunities for Small Cap and Fundamental Large
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Fundamental is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Large Cap 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 Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of Small Cap i.e., Small Cap and Fundamental Large go up and down completely randomly.
Pair Corralation between Small Cap and Fundamental Large
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.29 times more return on investment than Fundamental Large. However, Small Cap is 1.29 times more volatile than Fundamental Large Cap. It trades about 0.06 of its potential returns per unit of risk. Fundamental Large Cap is currently generating about 0.08 per unit of risk. If you would invest 1,595 in Small Cap Equity on September 4, 2024 and sell it today you would earn a total of 444.00 from holding Small Cap Equity or generate 27.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Fundamental Large Cap
Performance |
| Timeline |
| Small Cap Equity |
| Fundamental Large Cap |
Small Cap and Fundamental Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Fundamental Large
The main advantage of trading using opposite Small Cap and Fundamental Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Fundamental Large 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 Fundamental Large will offset losses from the drop in Fundamental Large's long position.| Small Cap vs. Firsthand Alternative Energy | Small Cap vs. Salient Mlp Energy | Small Cap vs. Tortoise Energy Independence | Small Cap vs. Goehring Rozencwajg Resources |
| Fundamental Large vs. Regional Bank Fund | Fundamental Large vs. Regional Bank Fund | Fundamental Large vs. Multimanager Lifestyle Moderate | Fundamental Large vs. Multimanager Lifestyle Balanced |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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