Correlation Between Inverse High and Small Cap
Can any of the company-specific risk be diversified away by investing in both Inverse High 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 Inverse High and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse High Yield and Small Cap Value, you can compare the effects of market volatilities on Inverse High 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 Inverse High with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse High and Small Cap.
Diversification Opportunities for Inverse High and Small Cap
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between INVERSE and SMALL is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Inverse High Yield and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Inverse High 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 Inverse High Yield 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 Value has no effect on the direction of Inverse High i.e., Inverse High and Small Cap go up and down completely randomly.
Pair Corralation between Inverse High and Small Cap
Assuming the 90 days horizon Inverse High Yield is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse High Yield is 5.92 times less risky than Small Cap. The mutual fund trades about -0.3 of its potential returns per unit of risk. The Small Cap Value is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,108 in Small Cap Value on September 4, 2024 and sell it today you would earn a total of 111.00 from holding Small Cap Value or generate 10.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Inverse High Yield vs. Small Cap Value
Performance |
| Timeline |
| Inverse High Yield |
| Small Cap Value |
Inverse High and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse High and Small Cap
The main advantage of trading using opposite Inverse High and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse High 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.| Inverse High vs. Western Assets Emerging | Inverse High vs. Artisan Emerging Markets | Inverse High vs. Calamos Market Neutral | Inverse High vs. Massmutual Select Diversified |
| Small Cap vs. Mid Cap Value | Small Cap vs. Equity Growth Fund | Small Cap vs. Income Growth Fund | Small Cap vs. Diversified Bond 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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