Correlation Between Small Cap and Absolute Strategies
Can any of the company-specific risk be diversified away by investing in both Small Cap and Absolute Strategies 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 Absolute Strategies 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 Absolute Strategies Fund, you can compare the effects of market volatilities on Small Cap and Absolute Strategies 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 Absolute Strategies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Absolute Strategies.
Diversification Opportunities for Small Cap and Absolute Strategies
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Absolute is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Absolute Strategies Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Strategies 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 Absolute Strategies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Strategies has no effect on the direction of Small Cap i.e., Small Cap and Absolute Strategies go up and down completely randomly.
Pair Corralation between Small Cap and Absolute Strategies
Assuming the 90 days horizon Small Cap Core is expected to generate 2.67 times more return on investment than Absolute Strategies. However, Small Cap is 2.67 times more volatile than Absolute Strategies Fund. It trades about 0.05 of its potential returns per unit of risk. Absolute Strategies Fund is currently generating about -0.07 per unit of risk. If you would invest 1,093 in Small Cap Core on August 24, 2024 and sell it today you would earn a total of 343.00 from holding Small Cap Core or generate 31.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 97.18% |
| Values | Daily Returns |
Small Cap Core vs. Absolute Strategies Fund
Performance |
| Timeline |
| Small Cap Core |
| Absolute Strategies |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Small Cap and Absolute Strategies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Absolute Strategies
The main advantage of trading using opposite Small Cap and Absolute Strategies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Absolute Strategies 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 Absolute Strategies will offset losses from the drop in Absolute Strategies' long position.| Small Cap vs. Ab Government Exchange | Small Cap vs. Us Government Securities | Small Cap vs. John Hancock Government | Small Cap vs. Virtus Seix Government |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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