Correlation Between NYSE Composite and Small Cap
Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Small Cap Value Fund, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Small Cap.
Diversification Opportunities for NYSE Composite and Small Cap
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between NYSE and Small is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and NYSE Composite 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 NYSE Composite 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 Value has no effect on the direction of NYSE Composite i.e., NYSE Composite and Small Cap go up and down completely randomly.
Pair Corralation between NYSE Composite and Small Cap
Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.9 times less return on investment than Small Cap. But when comparing it to its historical volatility, NYSE Composite is 3.04 times less risky than Small Cap. It trades about 0.42 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,969 in Small Cap Value Fund on September 1, 2024 and sell it today you would earn a total of 402.00 from holding Small Cap Value Fund or generate 10.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NYSE Composite vs. Small Cap Value Fund
Performance |
| Timeline |
NYSE Composite and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
Small Cap Value Fund
Pair trading matchups for Small Cap
Pair Trading with NYSE Composite and Small Cap
The main advantage of trading using opposite NYSE Composite and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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.| NYSE Composite vs. Acumen Pharmaceuticals | NYSE Composite vs. Mind Medicine | NYSE Composite vs. NL Industries | NYSE Composite vs. Ecovyst |
| Small Cap vs. Siit High Yield | Small Cap vs. Franklin High Income | Small Cap vs. T Rowe Price | Small Cap vs. Strategic Allocation Aggressive |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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