Correlation Between Basic Materials and Sp Smallcap
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Sp Smallcap 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 Basic Materials and Sp Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials Fund and Sp Smallcap 600, you can compare the effects of market volatilities on Basic Materials and Sp Smallcap 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 Basic Materials with a short position of Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Sp Smallcap.
Diversification Opportunities for Basic Materials and Sp Smallcap
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and RYSVX is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap 600 has no effect on the direction of Basic Materials i.e., Basic Materials and Sp Smallcap go up and down completely randomly.
Pair Corralation between Basic Materials and Sp Smallcap
Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Sp Smallcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Basic Materials Fund is 1.26 times less risky than Sp Smallcap. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Sp Smallcap 600 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 21,446 in Sp Smallcap 600 on September 13, 2024 and sell it today you would earn a total of 495.00 from holding Sp Smallcap 600 or generate 2.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Sp Smallcap 600
Performance |
| Timeline |
| Basic Materials |
| Sp Smallcap 600 |
Basic Materials and Sp Smallcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Sp Smallcap
The main advantage of trading using opposite Basic Materials and Sp Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Sp Smallcap 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 Sp Smallcap will offset losses from the drop in Sp Smallcap's long position.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Basic Materials Fund |
| Sp Smallcap vs. Basic Materials Fund | Sp Smallcap vs. Basic Materials Fund | Sp Smallcap vs. Banking Fund Class | Sp Smallcap vs. Basic Materials Fund |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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