Correlation Between Long/short Portfolio and Small Cap
Can any of the company-specific risk be diversified away by investing in both Long/short Portfolio and Small 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 Long/short Portfolio and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Longshort Portfolio Longshort and Small Cap Equity, you can compare the effects of market volatilities on Long/short Portfolio and Small 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 Long/short Portfolio with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long/short Portfolio and Small Cap.
Diversification Opportunities for Long/short Portfolio and Small Cap
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Long/short and Small is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Longshort Portfolio Longshort and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Long/short Portfolio 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 Longshort Portfolio Longshort are associated (or correlated) with Small Cap. 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 Equity has no effect on the direction of Long/short Portfolio i.e., Long/short Portfolio and Small Cap go up and down completely randomly.
Pair Corralation between Long/short Portfolio and Small Cap
Assuming the 90 days horizon Long/short Portfolio is expected to generate 1.4 times less return on investment than Small Cap. But when comparing it to its historical volatility, Longshort Portfolio Longshort is 3.14 times less risky than Small Cap. It trades about 0.4 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 3,362 in Small Cap Equity on August 26, 2024 and sell it today you would earn a total of 213.00 from holding Small Cap Equity or generate 6.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Longshort Portfolio Longshort vs. Small Cap Equity
Performance |
| Timeline |
| Long/short Portfolio |
| Small Cap Equity |
Long/short Portfolio and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Long/short Portfolio and Small Cap
The main advantage of trading using opposite Long/short Portfolio and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long/short Portfolio position performs unexpectedly, Small 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 Small Cap will offset losses from the drop in Small Cap's long position.| Long/short Portfolio vs. International Portfolio International | Long/short Portfolio vs. Small Cap Equity | Long/short Portfolio vs. Large Cap E | Long/short Portfolio vs. Matthews Pacific Tiger |
| Small Cap vs. Large Cap Growth | Small Cap vs. Lazard International Strategic | Small Cap vs. Equity Income Fund | Small Cap vs. Large Cap E |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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