Correlation Between Short Term and Small-company Stock
Can any of the company-specific risk be diversified away by investing in both Short Term and Small-company Stock 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 Short Term and Small-company Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Bond Fund and Small Company Stock Fund, you can compare the effects of market volatilities on Short Term and Small-company Stock 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 Short Term with a short position of Small-company Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and Small-company Stock.
Diversification Opportunities for Short Term and Small-company Stock
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Short and Small-company is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Bond Fund and Small Company Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small-company Stock and Short Term 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 Short Term Bond Fund are associated (or correlated) with Small-company Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small-company Stock has no effect on the direction of Short Term i.e., Short Term and Small-company Stock go up and down completely randomly.
Pair Corralation between Short Term and Small-company Stock
Assuming the 90 days horizon Short Term is expected to generate 3.8 times less return on investment than Small-company Stock. But when comparing it to its historical volatility, Short Term Bond Fund is 6.91 times less risky than Small-company Stock. It trades about 0.13 of its potential returns per unit of risk. Small Company Stock Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,335 in Small Company Stock Fund on September 4, 2024 and sell it today you would earn a total of 638.00 from holding Small Company Stock Fund or generate 27.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.66% |
| Values | Daily Returns |
Short Term Bond Fund vs. Small Company Stock Fund
Performance |
| Timeline |
| Short Term Bond |
| Small-company Stock |
Short Term and Small-company Stock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Term and Small-company Stock
The main advantage of trading using opposite Short Term and Small-company Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term position performs unexpectedly, Small-company Stock 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-company Stock will offset losses from the drop in Small-company Stock's long position.| Short Term vs. Pace Smallmedium Growth | Short Term vs. William Blair Growth | Short Term vs. Champlain Mid Cap | Short Term vs. Tfa Alphagen Growth |
| Small-company Stock vs. Qs Growth Fund | Small-company Stock vs. Small Pany Growth | Small-company Stock vs. Pace Large Growth | Small-company Stock vs. Rational Defensive 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
Other Complementary Tools
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Fundamental Analysis View fundamental data based on most recent published financial statements |