Correlation Between Smallcap and Equity Income
Can any of the company-specific risk be diversified away by investing in both Smallcap and Equity Income 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 and Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap Sp 600 and Equity Income Fund, you can compare the effects of market volatilities on Smallcap and Equity Income 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 with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap and Equity Income.
Diversification Opportunities for Smallcap and Equity Income
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and Equity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Smallcap 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 Sp 600 are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Smallcap i.e., Smallcap and Equity Income go up and down completely randomly.
Pair Corralation between Smallcap and Equity Income
Assuming the 90 days horizon Smallcap Sp 600 is expected to generate 1.92 times more return on investment than Equity Income. However, Smallcap is 1.92 times more volatile than Equity Income Fund. It trades about 0.08 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.15 per unit of risk. If you would invest 2,362 in Smallcap Sp 600 on August 26, 2024 and sell it today you would earn a total of 657.00 from holding Smallcap Sp 600 or generate 27.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap Sp 600 vs. Equity Income Fund
Performance |
| Timeline |
| Smallcap Sp 600 |
| Equity Income |
Smallcap and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap and Equity Income
The main advantage of trading using opposite Smallcap and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.| Smallcap vs. Artisan Small Cap | Smallcap vs. Chartwell Small Cap | Smallcap vs. Touchstone Small Cap | Smallcap vs. Small Pany Growth |
| Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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