Correlation Between Value Equity and Small Cap
Can any of the company-specific risk be diversified away by investing in both Value Equity 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 Value Equity and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Equity Institutional and Small Cap Equity, you can compare the effects of market volatilities on Value Equity 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 Value Equity with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Equity and Small Cap.
Diversification Opportunities for Value Equity and Small Cap
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Value and Small is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Value Equity Institutional 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 Value Equity 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 Value Equity Institutional 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 Value Equity i.e., Value Equity and Small Cap go up and down completely randomly.
Pair Corralation between Value Equity and Small Cap
Assuming the 90 days horizon Value Equity Institutional is expected to generate 0.74 times more return on investment than Small Cap. However, Value Equity Institutional is 1.34 times less risky than Small Cap. It trades about 0.34 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.21 per unit of risk. If you would invest 1,885 in Value Equity Institutional on November 7, 2024 and sell it today you would earn a total of 84.00 from holding Value Equity Institutional or generate 4.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Value Equity Institutional vs. Small Cap Equity
Performance |
| Timeline |
| Value Equity Institu |
| Small Cap Equity |
Value Equity and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Value Equity and Small Cap
The main advantage of trading using opposite Value Equity and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Equity 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.| Value Equity vs. Short Term Investment Trust | Value Equity vs. Western Asset Short | Value Equity vs. Kinetics Market Opportunities | Value Equity vs. Investec Emerging Markets |
| Small Cap vs. Fm Investments Large | Small Cap vs. L Abbett Growth | Small Cap vs. T Rowe Price | Small Cap vs. Growth Portfolio Class |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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