Correlation Between Small Cap and Small-cap Value
Can any of the company-specific risk be diversified away by investing in both Small Cap and Small-cap Value 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 Small-cap Value 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 Small Cap Value Profund, you can compare the effects of market volatilities on Small Cap and Small-cap Value 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 Small-cap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Small-cap Value.
Diversification Opportunities for Small Cap and Small-cap Value
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and SMALL-CAP is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap 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 Small-cap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Small Cap i.e., Small Cap and Small-cap Value go up and down completely randomly.
Pair Corralation between Small Cap and Small-cap Value
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.01 times more return on investment than Small-cap Value. However, Small Cap is 1.01 times more volatile than Small Cap Value Profund. It trades about 0.07 of its potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.06 per unit of risk. If you would invest 1,700 in Small Cap Equity on November 3, 2024 and sell it today you would earn a total of 165.00 from holding Small Cap Equity or generate 9.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Small Cap Value Profund
Performance |
| Timeline |
| Small Cap Equity |
| Small Cap Value |
Small Cap and Small-cap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Small-cap Value
The main advantage of trading using opposite Small Cap and Small-cap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Small-cap Value 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 Small-cap Value will offset losses from the drop in Small-cap Value'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. Vanguard Small Cap Index |
| Small-cap Value vs. T Rowe Price | Small-cap Value vs. Tax Managed Large Cap | Small-cap Value vs. Growth Portfolio Class | Small-cap Value vs. Small Pany Growth |
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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