Correlation Between Floating Rate and Small-cap Value
Can any of the company-specific risk be diversified away by investing in both Floating Rate and Small-cap Value 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 Floating Rate and Small-cap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Floating Rate Fund and Small Cap Value Series, you can compare the effects of market volatilities on Floating Rate and Small-cap Value 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 Floating Rate with a short position of Small-cap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floating Rate and Small-cap Value.
Diversification Opportunities for Floating Rate and Small-cap Value
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Floating and Small-cap is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Fund and Small Cap Value Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Floating Rate 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 Floating Rate Fund are associated (or correlated) with Small-cap Value. 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 Value has no effect on the direction of Floating Rate i.e., Floating Rate and Small-cap Value go up and down completely randomly.
Pair Corralation between Floating Rate and Small-cap Value
Assuming the 90 days horizon Floating Rate is expected to generate 13.4 times less return on investment than Small-cap Value. But when comparing it to its historical volatility, Floating Rate Fund is 13.21 times less risky than Small-cap Value. It trades about 0.28 of its potential returns per unit of risk. Small Cap Value Series is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,687 in Small Cap Value Series on August 29, 2024 and sell it today you would earn a total of 178.00 from holding Small Cap Value Series or generate 10.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Floating Rate Fund vs. Small Cap Value Series
Performance |
| Timeline |
| Floating Rate |
| Small Cap Value |
Floating Rate and Small-cap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Floating Rate and Small-cap Value
The main advantage of trading using opposite Floating Rate and Small-cap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floating Rate position performs unexpectedly, Small-cap Value 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 Value will offset losses from the drop in Small-cap Value's long position.| Floating Rate vs. Oppenheimer Senior Floating | Floating Rate vs. Floating Rate Fund | Floating Rate vs. Lord Abbett Inv | Floating Rate vs. HUMANA INC |
| Small-cap Value vs. Astor Longshort Fund | Small-cap Value vs. Old Westbury Short Term | Small-cap Value vs. Angel Oak Ultrashort | Small-cap Value vs. Barings Active Short |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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