Correlation Between Moderately Aggressive and Small Capitalization
Can any of the company-specific risk be diversified away by investing in both Moderately Aggressive and Small Capitalization 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 Moderately Aggressive and Small Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moderately Aggressive Balanced and Small Capitalization Portfolio, you can compare the effects of market volatilities on Moderately Aggressive and Small Capitalization 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 Moderately Aggressive with a short position of Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Aggressive and Small Capitalization.
Diversification Opportunities for Moderately Aggressive and Small Capitalization
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Moderately and Small is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Small Capitalization go up and down completely randomly.
Pair Corralation between Moderately Aggressive and Small Capitalization
Assuming the 90 days horizon Moderately Aggressive is expected to generate 1.7 times less return on investment than Small Capitalization. But when comparing it to its historical volatility, Moderately Aggressive Balanced is 2.36 times less risky than Small Capitalization. It trades about 0.11 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 638.00 in Small Capitalization Portfolio on August 25, 2024 and sell it today you would earn a total of 84.00 from holding Small Capitalization Portfolio or generate 13.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Moderately Aggressive Balanced vs. Small Capitalization Portfolio
Performance |
| Timeline |
| Moderately Aggressive |
| Small Capitalization |
Moderately Aggressive and Small Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moderately Aggressive and Small Capitalization
The main advantage of trading using opposite Moderately Aggressive and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderately Aggressive position performs unexpectedly, Small Capitalization 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 Capitalization will offset losses from the drop in Small Capitalization's long position.| Moderately Aggressive vs. Queens Road Small | Moderately Aggressive vs. Pace Smallmedium Value | Moderately Aggressive vs. Vanguard Small Cap Value | Moderately Aggressive vs. Fidelity Small Cap |
| Small Capitalization vs. Vanguard Small Cap Index | Small Capitalization vs. Vanguard Small Cap Index | Small Capitalization vs. Vanguard Small Cap Index | Small Capitalization vs. Fidelity Small Cap |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
Other Complementary Tools
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance |