Correlation Between Small Cap and Inverse Mid-cap
Can any of the company-specific risk be diversified away by investing in both Small Cap and Inverse Mid-cap 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 Inverse Mid-cap 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 Inverse Mid Cap Strategy, you can compare the effects of market volatilities on Small Cap and Inverse Mid-cap 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 Inverse Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Inverse Mid-cap.
Diversification Opportunities for Small Cap and Inverse Mid-cap
-0.98 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Small and Inverse is -0.98. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Inverse Mid Cap Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Mid Cap 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 Inverse Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Mid Cap has no effect on the direction of Small Cap i.e., Small Cap and Inverse Mid-cap go up and down completely randomly.
Pair Corralation between Small Cap and Inverse Mid-cap
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.2 times more return on investment than Inverse Mid-cap. However, Small Cap is 1.2 times more volatile than Inverse Mid Cap Strategy. It trades about 0.11 of its potential returns per unit of risk. Inverse Mid Cap Strategy is currently generating about -0.08 per unit of risk. If you would invest 1,710 in Small Cap Equity on September 2, 2024 and sell it today you would earn a total of 321.00 from holding Small Cap Equity or generate 18.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Inverse Mid Cap Strategy
Performance |
| Timeline |
| Small Cap Equity |
| Inverse Mid Cap |
Small Cap and Inverse Mid-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Inverse Mid-cap
The main advantage of trading using opposite Small Cap and Inverse Mid-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Inverse Mid-cap 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 Inverse Mid-cap will offset losses from the drop in Inverse Mid-cap's long position.| Small Cap vs. Growth Allocation Fund | Small Cap vs. Defensive Market Strategies | Small Cap vs. Defensive Market Strategies | Small Cap vs. Value Equity Institutional |
| Inverse Mid-cap vs. Nuveen Minnesota Municipal | Inverse Mid-cap vs. Alliancebernstein National Municipal | Inverse Mid-cap vs. Franklin High Yield | Inverse Mid-cap vs. Morningstar Municipal Bond |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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