Correlation Between Us Small and Us Defensive
Can any of the company-specific risk be diversified away by investing in both Us Small and Us Defensive 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 Us Small and Us Defensive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Small Cap and Us Defensive Equity, you can compare the effects of market volatilities on Us Small and Us Defensive 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 Us Small with a short position of Us Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Small and Us Defensive.
Diversification Opportunities for Us Small and Us Defensive
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between RSCRX and REUYX is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Us Small Cap and Us Defensive Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Defensive Equity and Us Small 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 Us Small Cap are associated (or correlated) with Us Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Defensive Equity has no effect on the direction of Us Small i.e., Us Small and Us Defensive go up and down completely randomly.
Pair Corralation between Us Small and Us Defensive
Assuming the 90 days horizon Us Small Cap is expected to generate 2.24 times more return on investment than Us Defensive. However, Us Small is 2.24 times more volatile than Us Defensive Equity. It trades about 0.3 of its potential returns per unit of risk. Us Defensive Equity is currently generating about 0.33 per unit of risk. If you would invest 2,842 in Us Small Cap on September 1, 2024 and sell it today you would earn a total of 292.00 from holding Us Small Cap or generate 10.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Small Cap vs. Us Defensive Equity
Performance |
| Timeline |
| Us Small Cap |
| Us Defensive Equity |
Us Small and Us Defensive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Small and Us Defensive
The main advantage of trading using opposite Us Small and Us Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Small position performs unexpectedly, Us Defensive 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 Us Defensive will offset losses from the drop in Us Defensive's long position.| Us Small vs. International Developed Markets | Us Small vs. Global Real Estate | Us Small vs. Global Real Estate | Us Small vs. Global Real Estate |
| Us Defensive vs. International Developed Markets | Us Defensive vs. Global Real Estate | Us Defensive vs. Global Real Estate | Us Defensive vs. Global Real Estate |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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