Correlation Between Small Cap and Pace Large
Can any of the company-specific risk be diversified away by investing in both Small Cap and Pace 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 Pace 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 Pace Large Value, you can compare the effects of market volatilities on Small Cap and Pace 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 Pace Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Pace Large.
Diversification Opportunities for Small Cap and Pace Large
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Pace is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Pace Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Value 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 Pace Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Large Value has no effect on the direction of Small Cap i.e., Small Cap and Pace Large go up and down completely randomly.
Pair Corralation between Small Cap and Pace Large
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.9 times more return on investment than Pace Large. However, Small Cap is 1.9 times more volatile than Pace Large Value. It trades about 0.21 of its potential returns per unit of risk. Pace Large Value is currently generating about 0.09 per unit of risk. If you would invest 1,850 in Small Cap Equity on August 24, 2024 and sell it today you would earn a total of 132.00 from holding Small Cap Equity or generate 7.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Small Cap Equity vs. Pace Large Value
Performance |
| Timeline |
| Small Cap Equity |
| Pace Large Value |
Small Cap and Pace Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Pace Large
The main advantage of trading using opposite Small Cap and Pace Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Pace 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 Pace Large will offset losses from the drop in Pace Large's long position.| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Fidelity Small Cap |
| Pace Large vs. Small Cap Equity | Pace Large vs. Artisan Select Equity | Pace Large vs. Balanced Fund Retail | Pace Large vs. Federated Equity 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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