Correlation Between Sp Smallcap and Sp 500
Can any of the company-specific risk be diversified away by investing in both Sp Smallcap and Sp 500 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 Smallcap and Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp Smallcap 600 and Sp 500 Fund, you can compare the effects of market volatilities on Sp Smallcap and Sp 500 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 Smallcap with a short position of Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Smallcap and Sp 500.
Diversification Opportunities for Sp Smallcap and Sp 500
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between RYWAX and RYSPX is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Sp 500 Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Fund and Sp Smallcap 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 Smallcap 600 are associated (or correlated) with Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 Fund has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Sp 500 go up and down completely randomly.
Pair Corralation between Sp Smallcap and Sp 500
Assuming the 90 days horizon Sp Smallcap 600 is expected to generate 1.89 times more return on investment than Sp 500. However, Sp Smallcap is 1.89 times more volatile than Sp 500 Fund. It trades about 0.13 of its potential returns per unit of risk. Sp 500 Fund is currently generating about 0.14 per unit of risk. If you would invest 5,733 in Sp Smallcap 600 on August 26, 2024 and sell it today you would earn a total of 438.00 from holding Sp Smallcap 600 or generate 7.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sp Smallcap 600 vs. Sp 500 Fund
Performance |
| Timeline |
| Sp Smallcap 600 |
| Sp 500 Fund |
Sp Smallcap and Sp 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp Smallcap and Sp 500
The main advantage of trading using opposite Sp Smallcap and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp Smallcap position performs unexpectedly, Sp 500 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 500 will offset losses from the drop in Sp 500's long position.| Sp Smallcap vs. Sp 500 Pure | Sp Smallcap vs. Sp Midcap 400 | Sp Smallcap vs. Sp Smallcap 600 | Sp Smallcap vs. Sp 500 Pure |
| Sp 500 vs. Sp 500 Pure | Sp 500 vs. Russell 2000 Fund | Sp 500 vs. Sp Smallcap 600 | Sp 500 vs. Sp Midcap 400 |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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