Correlation Between Small Cap and HE Equipment
Can any of the company-specific risk be diversified away by investing in both Small Cap and HE Equipment 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 HE Equipment 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 HE Equipment Services, you can compare the effects of market volatilities on Small Cap and HE Equipment 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 HE Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and HE Equipment.
Diversification Opportunities for Small Cap and HE Equipment
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and HEES is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Small Cap i.e., Small Cap and HE Equipment go up and down completely randomly.
Pair Corralation between Small Cap and HE Equipment
Assuming the 90 days horizon Small Cap is expected to generate 2.63 times less return on investment than HE Equipment. But when comparing it to its historical volatility, Small Cap Core is 1.97 times less risky than HE Equipment. It trades about 0.09 of its potential returns per unit of risk. HE Equipment Services is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 4,844 in HE Equipment Services on August 26, 2024 and sell it today you would earn a total of 1,032 from holding HE Equipment Services or generate 21.3% 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. HE Equipment Services
Performance |
| Timeline |
| Small Cap Core |
| HE Equipment Services |
Small Cap and HE Equipment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and HE Equipment
The main advantage of trading using opposite Small Cap and HE Equipment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, HE Equipment 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 HE Equipment will offset losses from the drop in HE Equipment's long position.| Small Cap vs. Pace High Yield | Small Cap vs. Needham Aggressive Growth | Small Cap vs. Metropolitan West High | Small Cap vs. Pioneer High Income |
| HE Equipment vs. PROG Holdings | HE Equipment vs. McGrath RentCorp | HE Equipment vs. Mega Matrix Corp | HE Equipment vs. FTAI Aviation Ltd |
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 CEOs Directory module to screen CEOs from public companies around the world.
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