Correlation Between Small Cap and Multimanager Lifestyle
Can any of the company-specific risk be diversified away by investing in both Small Cap and Multimanager Lifestyle 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 Multimanager Lifestyle 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 Multimanager Lifestyle Balanced, you can compare the effects of market volatilities on Small Cap and Multimanager Lifestyle 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 Multimanager Lifestyle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Multimanager Lifestyle.
Diversification Opportunities for Small Cap and Multimanager Lifestyle
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Multimanager is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Multimanager Lifestyle Balance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multimanager Lifestyle 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 Multimanager Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multimanager Lifestyle has no effect on the direction of Small Cap i.e., Small Cap and Multimanager Lifestyle go up and down completely randomly.
Pair Corralation between Small Cap and Multimanager Lifestyle
Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Multimanager Lifestyle. In addition to that, Small Cap is 2.5 times more volatile than Multimanager Lifestyle Balanced. It trades about -0.07 of its total potential returns per unit of risk. Multimanager Lifestyle Balanced is currently generating about 0.01 per unit of volatility. If you would invest 1,364 in Multimanager Lifestyle Balanced on November 7, 2024 and sell it today you would earn a total of 2.00 from holding Multimanager Lifestyle Balanced or generate 0.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Multimanager Lifestyle Balance
Performance |
| Timeline |
| Small Cap Equity |
| Multimanager Lifestyle |
Small Cap and Multimanager Lifestyle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Multimanager Lifestyle
The main advantage of trading using opposite Small Cap and Multimanager Lifestyle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Multimanager Lifestyle 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 Multimanager Lifestyle will offset losses from the drop in Multimanager Lifestyle's long position.| Small Cap vs. Firsthand Technology Opportunities | Small Cap vs. Specialized Technology Fund | Small Cap vs. Columbia Global Technology | Small Cap vs. Science Technology Fund |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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