Correlation Between Blue Chip and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both Blue Chip and Smallcap Value 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 Blue Chip and Smallcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Fund and Smallcap Value Fund, you can compare the effects of market volatilities on Blue Chip and Smallcap Value 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 Blue Chip with a short position of Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Smallcap Value.
Diversification Opportunities for Blue Chip and Smallcap Value
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Blue and Smallcap is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value and Blue Chip 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 Blue Chip Fund are associated (or correlated) with Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of Blue Chip i.e., Blue Chip and Smallcap Value go up and down completely randomly.
Pair Corralation between Blue Chip and Smallcap Value
Assuming the 90 days horizon Blue Chip Fund is expected to generate 0.73 times more return on investment than Smallcap Value. However, Blue Chip Fund is 1.38 times less risky than Smallcap Value. It trades about 0.11 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about 0.03 per unit of risk. If you would invest 2,969 in Blue Chip Fund on September 3, 2024 and sell it today you would earn a total of 1,970 from holding Blue Chip Fund or generate 66.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Chip Fund vs. Smallcap Value Fund
Performance |
| Timeline |
| Blue Chip Fund |
| Smallcap Value |
Blue Chip and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Smallcap Value
The main advantage of trading using opposite Blue Chip and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip position performs unexpectedly, Smallcap Value 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 Smallcap Value will offset losses from the drop in Smallcap Value's long position.| Blue Chip vs. Global Gold Fund | Blue Chip vs. International Investors Gold | Blue Chip vs. Precious Metals And | Blue Chip vs. Oppenheimer Gold Special |
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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 Transaction History module to view history of all your transactions and understand their impact on performance.
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