Correlation Between Small Midcap and Financial Industries
Can any of the company-specific risk be diversified away by investing in both Small Midcap and Financial Industries 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 Small Midcap and Financial Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Midcap Dividend Income and Financial Industries Fund, you can compare the effects of market volatilities on Small Midcap and Financial Industries 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 Small Midcap with a short position of Financial Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Midcap and Financial Industries.
Diversification Opportunities for Small Midcap and Financial Industries
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Financial is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Small Midcap Dividend Income and Financial Industries Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Industries and Small Midcap 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 Small Midcap Dividend Income are associated (or correlated) with Financial Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Industries has no effect on the direction of Small Midcap i.e., Small Midcap and Financial Industries go up and down completely randomly.
Pair Corralation between Small Midcap and Financial Industries
Assuming the 90 days horizon Small Midcap Dividend Income is expected to under-perform the Financial Industries. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Midcap Dividend Income is 1.3 times less risky than Financial Industries. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Financial Industries Fund is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 2,038 in Financial Industries Fund on November 6, 2024 and sell it today you would lose (134.00) from holding Financial Industries Fund or give up 6.58% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Midcap Dividend Income vs. Financial Industries Fund
Performance |
| Timeline |
| Small Midcap Dividend |
| Financial Industries |
Small Midcap and Financial Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Midcap and Financial Industries
The main advantage of trading using opposite Small Midcap and Financial Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Midcap position performs unexpectedly, Financial Industries 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 Financial Industries will offset losses from the drop in Financial Industries' long position.| Small Midcap vs. Multisector Bond Sma | Small Midcap vs. Chartwell Short Duration | Small Midcap vs. Touchstone Ultra Short | Small Midcap vs. Ambrus Core Bond |
| Financial Industries vs. Payden High Income | Financial Industries vs. Prudential High Yield | Financial Industries vs. Dunham High Yield | Financial Industries vs. Buffalo High Yield |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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