Correlation Between Small Cap and Growth Opportunities
Can any of the company-specific risk be diversified away by investing in both Small Cap and Growth Opportunities 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 Small Cap and Growth Opportunities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and Growth Opportunities Fund, you can compare the effects of market volatilities on Small Cap and Growth Opportunities 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 Small Cap with a short position of Growth Opportunities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Growth Opportunities.
Diversification Opportunities for Small Cap and Growth Opportunities
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and GROWTH is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Growth Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Opportunities and Small Cap 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 Small Cap Core are associated (or correlated) with Growth Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Opportunities has no effect on the direction of Small Cap i.e., Small Cap and Growth Opportunities go up and down completely randomly.
Pair Corralation between Small Cap and Growth Opportunities
Assuming the 90 days horizon Small Cap Core is expected to generate 1.56 times more return on investment than Growth Opportunities. However, Small Cap is 1.56 times more volatile than Growth Opportunities Fund. It trades about 0.21 of its potential returns per unit of risk. Growth Opportunities Fund is currently generating about 0.16 per unit of risk. If you would invest 1,379 in Small Cap Core on August 31, 2024 and sell it today you would earn a total of 111.00 from holding Small Cap Core or generate 8.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. Growth Opportunities Fund
Performance |
| Timeline |
| Small Cap Core |
| Growth Opportunities |
Small Cap and Growth Opportunities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Growth Opportunities
The main advantage of trading using opposite Small Cap and Growth Opportunities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Growth Opportunities 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 Growth Opportunities will offset losses from the drop in Growth Opportunities' long position.| Small Cap vs. Nasdaq 100 Index Fund | Small Cap vs. Semiconductor Ultrasector Profund | Small Cap vs. Ab Value Fund | Small Cap vs. Vanguard Small Cap Growth |
| Growth Opportunities vs. Europacific Growth Fund | Growth Opportunities vs. Washington Mutual Investors | Growth Opportunities vs. Capital World Growth | Growth Opportunities vs. HUMANA INC |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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