Correlation Between Alternative Credit and Small Cap
Can any of the company-specific risk be diversified away by investing in both Alternative Credit and Small Cap 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 Alternative Credit and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alternative Credit Income and Small Cap Core, you can compare the effects of market volatilities on Alternative Credit and Small Cap 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 Alternative Credit with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alternative Credit and Small Cap.
Diversification Opportunities for Alternative Credit and Small Cap
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alternative and Small is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alternative Credit Income and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Alternative Credit 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 Alternative Credit Income are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Alternative Credit i.e., Alternative Credit and Small Cap go up and down completely randomly.
Pair Corralation between Alternative Credit and Small Cap
Assuming the 90 days horizon Alternative Credit is expected to generate 4.34 times less return on investment than Small Cap. But when comparing it to its historical volatility, Alternative Credit Income is 4.75 times less risky than Small Cap. It trades about 0.08 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,067 in Small Cap Core on August 30, 2024 and sell it today you would earn a total of 444.00 from holding Small Cap Core or generate 41.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alternative Credit Income vs. Small Cap Core
Performance |
| Timeline |
| Alternative Credit Income |
| Small Cap Core |
Alternative Credit and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alternative Credit and Small Cap
The main advantage of trading using opposite Alternative Credit and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alternative Credit position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Alternative Credit vs. Aig Government Money | Alternative Credit vs. Blackrock Government Bond | Alternative Credit vs. Dws Government Money | Alternative Credit vs. Franklin Adjustable Government |
| Small Cap vs. Scharf Global Opportunity | Small Cap vs. Ms Global Fixed | Small Cap vs. Barings Global Floating | Small Cap vs. Ab Global Bond |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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