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 Special, 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
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between NYSE and SMALL is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Small Cap Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Special 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 Special 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 0.54 times more return on investment than Small Cap. However, NYSE Composite is 1.85 times less risky than Small Cap. It trades about 0.14 of its potential returns per unit of risk. Small Cap Special is currently generating about 0.07 per unit of risk. If you would invest 1,800,696 in NYSE Composite on August 30, 2024 and sell it today you would earn a total of 220,286 from holding NYSE Composite or generate 12.23% 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 Special
Performance |
| Timeline |
NYSE Composite and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
Small Cap Special
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. Delek Drilling | NYSE Composite vs. Helmerich and Payne | NYSE Composite vs. Waste Management | NYSE Composite vs. US Global Investors |
| Small Cap vs. Mid Cap Index | Small Cap vs. Mid Cap Strategic | Small Cap vs. Valic Company I | Small Cap vs. Valic Company I |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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