Correlation Between Small Cap and American Beacon
Can any of the company-specific risk be diversified away by investing in both Small Cap and American Beacon 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 American Beacon 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 American Beacon Shapiro, you can compare the effects of market volatilities on Small Cap and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and American Beacon.
Diversification Opportunities for Small Cap and American Beacon
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and American Beacon Shapiro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Shapiro 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Shapiro has no effect on the direction of Small Cap i.e., Small Cap and American Beacon go up and down completely randomly.
Pair Corralation between Small Cap and American Beacon
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.04 times more return on investment than American Beacon. However, Small Cap is 1.04 times more volatile than American Beacon Shapiro. It trades about 0.05 of its potential returns per unit of risk. American Beacon Shapiro is currently generating about 0.03 per unit of risk. If you would invest 1,529 in Small Cap Equity on September 5, 2024 and sell it today you would earn a total of 506.00 from holding Small Cap Equity or generate 33.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. American Beacon Shapiro
Performance |
| Timeline |
| Small Cap Equity |
| American Beacon Shapiro |
Small Cap and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and American Beacon
The main advantage of trading using opposite Small Cap and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Small Cap vs. Lind Capital Partners | Small Cap vs. Cs 607 Tax | Small Cap vs. Pace Municipal Fixed | Small Cap vs. Federated Pennsylvania Municipal |
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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