Correlation Between Rational Defensive and Small Cap
Can any of the company-specific risk be diversified away by investing in both Rational Defensive 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 Rational Defensive and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rational Defensive Growth and Small Cap Equity, you can compare the effects of market volatilities on Rational Defensive 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 Rational Defensive with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Small Cap.
Diversification Opportunities for Rational Defensive and Small Cap
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Rational and Small is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth 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 Rational Defensive 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 Rational Defensive Growth 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 Rational Defensive i.e., Rational Defensive and Small Cap go up and down completely randomly.
Pair Corralation between Rational Defensive and Small Cap
Assuming the 90 days horizon Rational Defensive is expected to generate 1.25 times less return on investment than Small Cap. But when comparing it to its historical volatility, Rational Defensive Growth is 1.99 times less risky than Small Cap. It trades about 0.46 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,852 in Small Cap Equity on September 4, 2024 and sell it today you would earn a total of 187.00 from holding Small Cap Equity or generate 10.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rational Defensive Growth vs. Small Cap Equity
Performance |
| Timeline |
| Rational Defensive Growth |
| Small Cap Equity |
Rational Defensive and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rational Defensive and Small Cap
The main advantage of trading using opposite Rational Defensive and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Defensive 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.| Rational Defensive vs. Rational Dynamic Momentum | Rational Defensive vs. Rational Dynamic Momentum | Rational Defensive vs. Rational Dynamic Momentum | Rational Defensive vs. Rational Special Situations |
| Small Cap vs. Firsthand Alternative Energy | Small Cap vs. Salient Mlp Energy | Small Cap vs. Tortoise Energy Independence | Small Cap vs. Goehring Rozencwajg Resources |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
Other Complementary Tools
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Earnings Calls Check upcoming earnings announcements updated hourly across public exchanges | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges |