Correlation Between Small Cap and Global Core
Can any of the company-specific risk be diversified away by investing in both Small Cap and Global Core 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 Global Core 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 Global E Portfolio, you can compare the effects of market volatilities on Small Cap and Global Core 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 Global Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Global Core.
Diversification Opportunities for Small Cap and Global Core
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Global is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Global E Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E Portfolio 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 Global Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Portfolio has no effect on the direction of Small Cap i.e., Small Cap and Global Core go up and down completely randomly.
Pair Corralation between Small Cap and Global Core
Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Global Core. In addition to that, Small Cap is 1.5 times more volatile than Global E Portfolio. It trades about -0.15 of its total potential returns per unit of risk. Global E Portfolio is currently generating about 0.04 per unit of volatility. If you would invest 2,140 in Global E Portfolio on October 28, 2024 and sell it today you would earn a total of 27.00 from holding Global E Portfolio or generate 1.26% 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. Global E Portfolio
Performance |
| Timeline |
| Small Cap Equity |
| Global E Portfolio |
Small Cap and Global Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Global Core
The main advantage of trading using opposite Small Cap and Global Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Global Core 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 Global Core will offset losses from the drop in Global Core's long position.| Small Cap vs. Goldman Sachs Strategic | Small Cap vs. Invesco Gold Special | Small Cap vs. World Precious Minerals | Small Cap vs. Oppenheimer Gold Special |
| Global Core vs. Dunham High Yield | Global Core vs. Buffalo High Yield | Global Core vs. Msift High Yield | Global Core vs. Payden High Income |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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