Correlation Between Blue Chip and Small Cap
Can any of the company-specific risk be diversified away by investing in both Blue Chip 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 Blue Chip and Small Cap 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 Small Cap Growth Profund, you can compare the effects of market volatilities on Blue Chip 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 Blue Chip with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Small Cap.
Diversification Opportunities for Blue Chip and Small Cap
Very poor diversification
The 3 months correlation between Blue and Small is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Small Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 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 Growth has no effect on the direction of Blue Chip i.e., Blue Chip and Small Cap go up and down completely randomly.
Pair Corralation between Blue Chip and Small Cap
Assuming the 90 days horizon Blue Chip Fund is expected to generate 0.77 times more return on investment than Small Cap. However, Blue Chip Fund is 1.3 times less risky than Small Cap. It trades about 0.06 of its potential returns per unit of risk. Small Cap Growth Profund is currently generating about 0.05 per unit of risk. If you would invest 4,192 in Blue Chip Fund on November 3, 2024 and sell it today you would earn a total of 629.00 from holding Blue Chip Fund or generate 15.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Blue Chip Fund vs. Small Cap Growth Profund
Performance |
| Timeline |
| Blue Chip Fund |
| Small Cap Growth |
Blue Chip and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Small Cap
The main advantage of trading using opposite Blue Chip and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip 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.| Blue Chip vs. James Balanced Golden | Blue Chip vs. Gabelli Gold Fund | Blue Chip vs. Short Precious Metals | Blue Chip vs. Great West Goldman Sachs |
| Small Cap vs. Small Cap Value Profund | Small Cap vs. Mid Cap Growth Profund | Small Cap vs. Mid Cap Value Profund | Small Cap vs. Small Cap Profund 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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