Correlation Between Sp 500 and Sp Smallcap
Can any of the company-specific risk be diversified away by investing in both Sp 500 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 Sp 500 and Sp Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp 500 Fund and Sp Smallcap 600, you can compare the effects of market volatilities on Sp 500 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 Sp 500 with a short position of Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Sp Smallcap.
Diversification Opportunities for Sp 500 and Sp Smallcap
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between RYSPX and RYWAX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 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 Sp 500 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 Sp 500 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 Sp 500 i.e., Sp 500 and Sp Smallcap go up and down completely randomly.
Pair Corralation between Sp 500 and Sp Smallcap
Assuming the 90 days horizon Sp 500 is expected to generate 3.3 times less return on investment than Sp Smallcap. But when comparing it to its historical volatility, Sp 500 Fund is 1.93 times less risky than Sp Smallcap. It trades about 0.15 of its potential returns per unit of risk. Sp Smallcap 600 is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 5,648 in Sp Smallcap 600 on August 30, 2024 and sell it today you would earn a total of 569.00 from holding Sp Smallcap 600 or generate 10.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Sp 500 Fund vs. Sp Smallcap 600
Performance |
| Timeline |
| Sp 500 Fund |
| Sp Smallcap 600 |
Sp 500 and Sp Smallcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp 500 and Sp Smallcap
The main advantage of trading using opposite Sp 500 and Sp Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 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.| Sp 500 vs. Basic Materials Fund | Sp 500 vs. Basic Materials Fund | Sp 500 vs. Banking Fund Class | Sp 500 vs. Basic Materials Fund |
| Sp Smallcap vs. Sp 500 Pure | Sp Smallcap vs. Sp Midcap 400 | Sp Smallcap vs. Sp Smallcap 600 | Sp Smallcap vs. Sp 500 Pure |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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