Correlation Between Small Cap and Cref Inflation-linked
Can any of the company-specific risk be diversified away by investing in both Small Cap and Cref Inflation-linked 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 Cref Inflation-linked 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 Cref Inflation Linked Bond, you can compare the effects of market volatilities on Small Cap and Cref Inflation-linked 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 Cref Inflation-linked. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Cref Inflation-linked.
Diversification Opportunities for Small Cap and Cref Inflation-linked
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and Cref is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Cref Inflation Linked Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cref Inflation Linked 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 Cref Inflation-linked. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cref Inflation Linked has no effect on the direction of Small Cap i.e., Small Cap and Cref Inflation-linked go up and down completely randomly.
Pair Corralation between Small Cap and Cref Inflation-linked
Assuming the 90 days horizon Small Cap Equity is expected to generate 5.14 times more return on investment than Cref Inflation-linked. However, Small Cap is 5.14 times more volatile than Cref Inflation Linked Bond. It trades about 0.21 of its potential returns per unit of risk. Cref Inflation Linked Bond is currently generating about 0.33 per unit of risk. If you would invest 1,807 in Small Cap Equity on November 6, 2024 and sell it today you would earn a total of 67.00 from holding Small Cap Equity or generate 3.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Cref Inflation Linked Bond
Performance |
| Timeline |
| Small Cap Equity |
| Cref Inflation Linked |
Small Cap and Cref Inflation-linked Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Cref Inflation-linked
The main advantage of trading using opposite Small Cap and Cref Inflation-linked positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Cref Inflation-linked 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 Cref Inflation-linked will offset losses from the drop in Cref Inflation-linked'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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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