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, 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
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between NYSE and Small is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Small Cap Value 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 0.65 times more return on investment than Small Cap. However, NYSE Composite is 1.54 times less risky than Small Cap. It trades about -0.05 of its potential returns per unit of risk. Small Cap Value is currently generating about -0.3 per unit of risk. If you would invest 2,016,622 in NYSE Composite on December 1, 2024 and sell it today you would lose (13,803) from holding NYSE Composite or give up 0.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NYSE Composite vs. Small Cap Value
Performance |
| Timeline |
NYSE Composite and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
Small Cap Value
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. Intuitive Surgical | NYSE Composite vs. Franklin Wireless Corp | NYSE Composite vs. Idaho Strategic Resources | NYSE Composite vs. Femasys |
| Small Cap vs. Blackrock Smid Cap Growth | Small Cap vs. Transamerica Financial Life | Small Cap vs. Ab Discovery Value | Small Cap vs. Nuveen Nwq 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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