Correlation Between Smallcap Growth and Largecap Value
Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Largecap 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 Smallcap Growth and Largecap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap Growth Fund and Largecap Value Fund, you can compare the effects of market volatilities on Smallcap Growth and Largecap 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 Smallcap Growth with a short position of Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Largecap Value.
Diversification Opportunities for Smallcap Growth and Largecap Value
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and Largecap is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Value and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Largecap Value go up and down completely randomly.
Pair Corralation between Smallcap Growth and Largecap Value
Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 1.84 times more return on investment than Largecap Value. However, Smallcap Growth is 1.84 times more volatile than Largecap Value Fund. It trades about 0.12 of its potential returns per unit of risk. Largecap Value Fund is currently generating about 0.14 per unit of risk. If you would invest 1,449 in Smallcap Growth Fund on September 5, 2024 and sell it today you would earn a total of 281.00 from holding Smallcap Growth Fund or generate 19.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap Growth Fund vs. Largecap Value Fund
Performance |
| Timeline |
| Smallcap Growth |
| Largecap Value |
Smallcap Growth and Largecap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap Growth and Largecap Value
The main advantage of trading using opposite Smallcap Growth and Largecap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth position performs unexpectedly, Largecap 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 Largecap Value will offset losses from the drop in Largecap Value's long position.| Smallcap Growth vs. Ab Impact Municipal | Smallcap Growth vs. Angel Oak Financial | Smallcap Growth vs. Maryland Tax Free Bond | Smallcap Growth vs. Versatile Bond Portfolio |
| Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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