Correlation Between Small Cap and RiverNorth Specialty
Can any of the company-specific risk be diversified away by investing in both Small Cap and RiverNorth Specialty 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 Cap and RiverNorth Specialty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Premium and RiverNorth Specialty Finance, you can compare the effects of market volatilities on Small Cap and RiverNorth Specialty 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 Cap with a short position of RiverNorth Specialty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and RiverNorth Specialty.
Diversification Opportunities for Small Cap and RiverNorth Specialty
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and RiverNorth is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and RiverNorth Specialty Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RiverNorth Specialty and Small Cap 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 Cap Premium are associated (or correlated) with RiverNorth Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RiverNorth Specialty has no effect on the direction of Small Cap i.e., Small Cap and RiverNorth Specialty go up and down completely randomly.
Pair Corralation between Small Cap and RiverNorth Specialty
Considering the 90-day investment horizon Small Cap Premium is expected to generate 1.78 times more return on investment than RiverNorth Specialty. However, Small Cap is 1.78 times more volatile than RiverNorth Specialty Finance. It trades about 0.04 of its potential returns per unit of risk. RiverNorth Specialty Finance is currently generating about -0.01 per unit of risk. If you would invest 2,433 in Small Cap Premium on August 29, 2024 and sell it today you would earn a total of 13.00 from holding Small Cap Premium or generate 0.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Premium vs. RiverNorth Specialty Finance
Performance |
| Timeline |
| Small Cap Premium |
| RiverNorth Specialty |
Small Cap and RiverNorth Specialty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and RiverNorth Specialty
The main advantage of trading using opposite Small Cap and RiverNorth Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, RiverNorth Specialty 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 RiverNorth Specialty will offset losses from the drop in RiverNorth Specialty's long position.| Small Cap vs. RiverNorth Specialty Finance | Small Cap vs. Royce Micro Cap | Small Cap vs. First Trust Enhanced | Small Cap vs. Voya Global Advantage |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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