Correlation Between Smallcap Growth and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both Smallcap Growth 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 Smallcap Growth and Smallcap 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 Smallcap Value Fund, you can compare the effects of market volatilities on Smallcap Growth 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 Smallcap Growth with a short position of Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Smallcap Value.
Diversification Opportunities for Smallcap Growth and Smallcap Value
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smallcap and Smallcap is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth 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 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 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 Smallcap Growth i.e., Smallcap Growth and Smallcap Value go up and down completely randomly.
Pair Corralation between Smallcap Growth and Smallcap Value
Assuming the 90 days horizon Smallcap Growth is expected to generate 1.13 times less return on investment than Smallcap Value. But when comparing it to its historical volatility, Smallcap Growth Fund is 1.07 times less risky than Smallcap Value. It trades about 0.26 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,264 in Smallcap Value Fund on September 2, 2024 and sell it today you would earn a total of 125.00 from holding Smallcap Value Fund or generate 9.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 85.71% |
| Values | Daily Returns |
Smallcap Growth Fund vs. Smallcap Value Fund
Performance |
| Timeline |
| Smallcap Growth |
| Smallcap Value |
Smallcap Growth and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap Growth and Smallcap Value
The main advantage of trading using opposite Smallcap Growth and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth 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.| Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management |
| Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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