Correlation Between Mid-cap Value and Small Cap
Can any of the company-specific risk be diversified away by investing in both Mid-cap Value 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 Mid-cap Value and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Value Profund and Small Cap Core, you can compare the effects of market volatilities on Mid-cap Value 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 Mid-cap Value with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid-cap Value and Small Cap.
Diversification Opportunities for Mid-cap Value and Small Cap
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Mid-cap and Small is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value Profund and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Mid-cap Value 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 Mid Cap Value Profund 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 Core has no effect on the direction of Mid-cap Value i.e., Mid-cap Value and Small Cap go up and down completely randomly.
Pair Corralation between Mid-cap Value and Small Cap
Assuming the 90 days horizon Mid-cap Value is expected to generate 1.31 times less return on investment than Small Cap. But when comparing it to its historical volatility, Mid Cap Value Profund is 1.12 times less risky than Small Cap. It trades about 0.05 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,086 in Small Cap Core on September 3, 2024 and sell it today you would earn a total of 416.00 from holding Small Cap Core or generate 38.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Value Profund vs. Small Cap Core
Performance |
| Timeline |
| Mid Cap Value |
| Small Cap Core |
Mid-cap Value and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid-cap Value and Small Cap
The main advantage of trading using opposite Mid-cap Value and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid-cap Value 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.| Mid-cap Value vs. Ultrasmall Cap Profund Ultrasmall Cap | Mid-cap Value vs. Queens Road Small | Mid-cap Value vs. Royce Opportunity Fund | Mid-cap Value vs. Vanguard Small Cap Value |
| Small Cap vs. Victory Rs Partners | Small Cap vs. Pace Smallmedium Value | Small Cap vs. Mid Cap Value Profund | Small Cap vs. Columbia Small 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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