Correlation Between Small-company Stock and Stock Index
Can any of the company-specific risk be diversified away by investing in both Small-company Stock and Stock Index 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-company Stock and Stock Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Company Stock Fund and Stock Index Fund, you can compare the effects of market volatilities on Small-company Stock and Stock Index 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-company Stock with a short position of Stock Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-company Stock and Stock Index.
Diversification Opportunities for Small-company Stock and Stock Index
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small-company and Stock is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Small Company Stock Fund and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund and Small-company Stock 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 Company Stock Fund are associated (or correlated) with Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of Small-company Stock i.e., Small-company Stock and Stock Index go up and down completely randomly.
Pair Corralation between Small-company Stock and Stock Index
Assuming the 90 days horizon Small Company Stock Fund is expected to generate 2.11 times more return on investment than Stock Index. However, Small-company Stock is 2.11 times more volatile than Stock Index Fund. It trades about 0.3 of its potential returns per unit of risk. Stock Index Fund is currently generating about 0.36 per unit of risk. If you would invest 2,709 in Small Company Stock Fund on September 1, 2024 and sell it today you would earn a total of 265.00 from holding Small Company Stock Fund or generate 9.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Small Company Stock Fund vs. Stock Index Fund
Performance |
| Timeline |
| Small-company Stock |
| Stock Index Fund |
Small-company Stock and Stock Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-company Stock and Stock Index
The main advantage of trading using opposite Small-company Stock and Stock Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-company Stock position performs unexpectedly, Stock Index 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 Stock Index will offset losses from the drop in Stock Index's long position.| Small-company Stock vs. Blackrock Inflation Protected | Small-company Stock vs. Fidelity Advisor 529 | Small-company Stock vs. American Funds Inflation | Small-company Stock vs. Ab Bond Inflation |
| Stock Index vs. Value Fund Value | Stock Index vs. Growth Fund Growth | Stock Index vs. International Equity Fund | Stock Index vs. Short Term Bond Fund |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Transaction History View history of all your transactions and understand their impact on performance | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Stocks Directory Find actively traded stocks across global markets | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios |