Correlation Between Smallcap Growth and Extended Market
Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Extended Market 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 Extended Market 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 Extended Market Index, you can compare the effects of market volatilities on Smallcap Growth and Extended Market 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 Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Extended Market.
Diversification Opportunities for Smallcap Growth and Extended Market
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Smallcap and Extended is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index 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 Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Extended Market go up and down completely randomly.
Pair Corralation between Smallcap Growth and Extended Market
Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 1.17 times more return on investment than Extended Market. However, Smallcap Growth is 1.17 times more volatile than Extended Market Index. It trades about 0.21 of its potential returns per unit of risk. Extended Market Index is currently generating about 0.22 per unit of risk. If you would invest 1,596 in Smallcap Growth Fund on August 24, 2024 and sell it today you would earn a total of 111.00 from holding Smallcap Growth Fund or generate 6.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap Growth Fund vs. Extended Market Index
Performance |
| Timeline |
| Smallcap Growth |
| Extended Market Index |
Smallcap Growth and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap Growth and Extended Market
The main advantage of trading using opposite Smallcap Growth and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Smallcap Growth vs. Extended Market Index | Smallcap Growth vs. Siit Emerging Markets | Smallcap Growth vs. Artisan Emerging Markets | Smallcap Growth vs. Western Asset Diversified |
| Extended Market vs. Inverse Government Long | Extended Market vs. Ab Government Exchange | Extended Market vs. Government Securities Fund | Extended Market vs. Prudential Government Income |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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