Correlation Between Large Cap and Small-cap Value
Can any of the company-specific risk be diversified away by investing in both Large Cap 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 Large Cap 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 Large Cap Growth Profund and Small Cap Value Profund, you can compare the effects of market volatilities on Large Cap 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 Large Cap with a short position of Small-cap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Small-cap Value.
Diversification Opportunities for Large Cap and Small-cap Value
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Large and Small-cap is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Large Cap 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 Large Cap Growth Profund 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 Large Cap i.e., Large Cap and Small-cap Value go up and down completely randomly.
Pair Corralation between Large Cap and Small-cap Value
Assuming the 90 days horizon Large Cap is expected to generate 2.56 times less return on investment than Small-cap Value. In addition to that, Large Cap is 1.39 times more volatile than Small Cap Value Profund. It trades about 0.04 of its total potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.13 per unit of volatility. If you would invest 10,945 in Small Cap Value Profund on October 20, 2024 and sell it today you would earn a total of 241.00 from holding Small Cap Value Profund or generate 2.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Growth Profund vs. Small Cap Value Profund
Performance |
| Timeline |
| Large Cap Growth |
| Small Cap Value |
Large Cap and Small-cap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Small-cap Value
The main advantage of trading using opposite Large Cap and Small-cap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap 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.| Large Cap vs. Mesirow Financial Small | Large Cap vs. Financial Industries Fund | Large Cap vs. Fidelity Advisor Financial | Large Cap vs. Putnam Global Financials |
| Small-cap Value vs. Morningstar Global Income | Small-cap Value vs. Calvert Moderate Allocation | Small-cap Value vs. Dreyfusstandish Global Fixed | Small-cap Value vs. Tax Managed Large Cap |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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