Correlation Between Small Cap and Nationwide Inflation
Can any of the company-specific risk be diversified away by investing in both Small Cap and Nationwide Inflation 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 Nationwide Inflation 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 Nationwide Inflation Protected Securities, you can compare the effects of market volatilities on Small Cap and Nationwide Inflation 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 Nationwide Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Nationwide Inflation.
Diversification Opportunities for Small Cap and Nationwide Inflation
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Nationwide is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Nationwide Inflation Protected in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Inflation 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 Nationwide Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Inflation has no effect on the direction of Small Cap i.e., Small Cap and Nationwide Inflation go up and down completely randomly.
Pair Corralation between Small Cap and Nationwide Inflation
Assuming the 90 days horizon Small Cap Equity is expected to generate 4.11 times more return on investment than Nationwide Inflation. However, Small Cap is 4.11 times more volatile than Nationwide Inflation Protected Securities. It trades about 0.25 of its potential returns per unit of risk. Nationwide Inflation Protected Securities is currently generating about 0.24 per unit of risk. If you would invest 1,795 in Small Cap Equity on October 28, 2024 and sell it today you would earn a total of 78.00 from holding Small Cap Equity or generate 4.35% 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. Nationwide Inflation Protected
Performance |
| Timeline |
| Small Cap Equity |
| Nationwide Inflation |
Small Cap and Nationwide Inflation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Nationwide Inflation
The main advantage of trading using opposite Small Cap and Nationwide Inflation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Nationwide Inflation 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 Nationwide Inflation will offset losses from the drop in Nationwide Inflation'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 |
| Nationwide Inflation vs. Davis Financial Fund | Nationwide Inflation vs. Hennessy Large Cap | Nationwide Inflation vs. Angel Oak Financial | Nationwide Inflation vs. Financial Industries 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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