Correlation Between Small Cap and Nasdaq 100
Can any of the company-specific risk be diversified away by investing in both Small Cap and Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Small Cap and Nasdaq 100 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 Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Nasdaq 100.
Diversification Opportunities for Small Cap and Nasdaq 100
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Nasdaq is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index 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 Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Small Cap i.e., Small Cap and Nasdaq 100 go up and down completely randomly.
Pair Corralation between Small Cap and Nasdaq 100
Assuming the 90 days horizon Small Cap Core is expected to generate 1.27 times more return on investment than Nasdaq 100. However, Small Cap is 1.27 times more volatile than Nasdaq 100 Index Fund. It trades about 0.14 of its potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.16 per unit of risk. If you would invest 1,337 in Small Cap Core on September 2, 2024 and sell it today you would earn a total of 156.00 from holding Small Cap Core or generate 11.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. Nasdaq 100 Index Fund
Performance |
| Timeline |
| Small Cap Core |
| Nasdaq 100 Index |
Small Cap and Nasdaq 100 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Nasdaq 100
The main advantage of trading using opposite Small Cap and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.| Small Cap vs. Strategic Allocation Aggressive | Small Cap vs. Legg Mason Partners | Small Cap vs. Aqr Risk Balanced Modities | Small Cap vs. Pace High Yield |
| Nasdaq 100 vs. Pimco Global Multi Asset | Nasdaq 100 vs. Commonwealth Global Fund | Nasdaq 100 vs. Mirova Global Green | Nasdaq 100 vs. T Rowe Price |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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