Correlation Between Small Company and Small Cap
Can any of the company-specific risk be diversified away by investing in both Small Company 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 Small Company and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Pany Growth and Small Cap Growth, you can compare the effects of market volatilities on Small Company 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 Small Company with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Small Cap.
Diversification Opportunities for Small Company and Small Cap
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and Small is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Small Company 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 Pany 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 Growth has no effect on the direction of Small Company i.e., Small Company and Small Cap go up and down completely randomly.
Pair Corralation between Small Company and Small Cap
Assuming the 90 days horizon Small Pany Growth is expected to generate 1.72 times more return on investment than Small Cap. However, Small Company is 1.72 times more volatile than Small Cap Growth. It trades about -0.05 of its potential returns per unit of risk. Small Cap Growth is currently generating about -0.23 per unit of risk. If you would invest 1,616 in Small Pany Growth on November 27, 2024 and sell it today you would lose (37.00) from holding Small Pany Growth or give up 2.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Growth vs. Small Cap Growth
Performance |
| Timeline |
| Small Pany Growth |
| Small Cap Growth |
Small Company and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Small Cap
The main advantage of trading using opposite Small Company and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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.| Small Company vs. Mid Cap Growth | Small Company vs. Growth Portfolio Class | Small Company vs. Morgan Stanley Multi | Small Company vs. Emerging Markets Portfolio |
| Small Cap vs. Transamerica Funds | Small Cap vs. Pace Select Advisors | Small Cap vs. T Rowe Price | Small Cap vs. Wilmington Funds |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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