Correlation Between Small Cap and Secured Options
Can any of the company-specific risk be diversified away by investing in both Small Cap and Secured Options 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 Secured Options 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 Secured Options Portfolio, you can compare the effects of market volatilities on Small Cap and Secured Options 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 Secured Options. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Secured Options.
Diversification Opportunities for Small Cap and Secured Options
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Secured is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Secured Options Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Secured Options Portfolio 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 Secured Options. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Secured Options Portfolio has no effect on the direction of Small Cap i.e., Small Cap and Secured Options go up and down completely randomly.
Pair Corralation between Small Cap and Secured Options
Assuming the 90 days horizon Small Cap Equity is expected to generate 3.21 times more return on investment than Secured Options. However, Small Cap is 3.21 times more volatile than Secured Options Portfolio. It trades about 0.08 of its potential returns per unit of risk. Secured Options Portfolio is currently generating about 0.16 per unit of risk. If you would invest 3,242 in Small Cap Equity on September 1, 2024 and sell it today you would earn a total of 435.00 from holding Small Cap Equity or generate 13.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Small Cap Equity vs. Secured Options Portfolio
Performance |
| Timeline |
| Small Cap Equity |
| Secured Options Portfolio |
Small Cap and Secured Options Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Secured Options
The main advantage of trading using opposite Small Cap and Secured Options positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Secured Options 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 Secured Options will offset losses from the drop in Secured Options' long position.| Small Cap vs. Large Cap Growth | Small Cap vs. Lazard International Strategic | Small Cap vs. Equity Income Fund | Small Cap vs. Large Cap E |
| Secured Options vs. Small Cap Equity | Secured Options vs. Matthews Pacific Tiger | Secured Options vs. Large Cap E | Secured Options vs. Longshort Portfolio Longshort |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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