Correlation Between Deutsche and Small Cap
Can any of the company-specific risk be diversified away by investing in both Deutsche 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 Deutsche and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deutsche Sp 500 and Small Cap Core, you can compare the effects of market volatilities on Deutsche 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 Deutsche with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche and Small Cap.
Diversification Opportunities for Deutsche and Small Cap
Almost no diversification
The 3 months correlation between Deutsche and Small is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Sp 500 and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Deutsche 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 Deutsche Sp 500 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 Core has no effect on the direction of Deutsche i.e., Deutsche and Small Cap go up and down completely randomly.
Pair Corralation between Deutsche and Small Cap
Assuming the 90 days horizon Deutsche Sp 500 is expected to generate 0.61 times more return on investment than Small Cap. However, Deutsche Sp 500 is 1.64 times less risky than Small Cap. It trades about 0.14 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.07 per unit of risk. If you would invest 3,702 in Deutsche Sp 500 on September 12, 2024 and sell it today you would earn a total of 1,470 from holding Deutsche Sp 500 or generate 39.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deutsche Sp 500 vs. Small Cap Core
Performance |
| Timeline |
| Deutsche Sp 500 |
| Small Cap Core |
Deutsche and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deutsche and Small Cap
The main advantage of trading using opposite Deutsche and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche 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.| Deutsche vs. Vanguard Total Stock | Deutsche vs. Vanguard 500 Index | Deutsche vs. Vanguard Total Stock | Deutsche vs. Vanguard Total Stock |
| Small Cap vs. Sp Midcap Index | Small Cap vs. Sp 500 Index | Small Cap vs. Nasdaq 100 Index Fund | Small Cap vs. Deutsche Sp 500 |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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