Correlation Between Small Company and Optimum Large
Can any of the company-specific risk be diversified away by investing in both Small Company and Optimum Large 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 Optimum Large 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 Optimum Large Cap, you can compare the effects of market volatilities on Small Company and Optimum Large 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 Optimum Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Optimum Large.
Diversification Opportunities for Small Company and Optimum Large
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Small and Optimum is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Optimum Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Large Cap 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 Optimum Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Large Cap has no effect on the direction of Small Company i.e., Small Company and Optimum Large go up and down completely randomly.
Pair Corralation between Small Company and Optimum Large
Assuming the 90 days horizon Small Pany Growth is expected to generate 1.28 times more return on investment than Optimum Large. However, Small Company is 1.28 times more volatile than Optimum Large Cap. It trades about 0.12 of its potential returns per unit of risk. Optimum Large Cap is currently generating about -0.02 per unit of risk. If you would invest 1,111 in Small Pany Growth on December 4, 2024 and sell it today you would earn a total of 341.00 from holding Small Pany Growth or generate 30.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Growth vs. Optimum Large Cap
Performance |
| Timeline |
| Small Pany Growth |
| Optimum Large Cap |
Small Company and Optimum Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Optimum Large
The main advantage of trading using opposite Small Company and Optimum Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Optimum Large 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 Optimum Large will offset losses from the drop in Optimum Large'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 |
| Optimum Large vs. Buffalo High Yield | Optimum Large vs. Doubleline Emerging Markets | Optimum Large vs. Gmo High Yield | Optimum Large vs. Rbc Bluebay Emerging |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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