Correlation Between Small Cap and SPACE
Can any of the company-specific risk be diversified away by investing in both Small Cap and SPACE 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 SPACE 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 SPACE, you can compare the effects of market volatilities on Small Cap and SPACE 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 SPACE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and SPACE.
Diversification Opportunities for Small Cap and SPACE
Poor diversification
The 3 months correlation between Small and SPACE is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and SPACE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPACE 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 SPACE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPACE has no effect on the direction of Small Cap i.e., Small Cap and SPACE go up and down completely randomly.
Pair Corralation between Small Cap and SPACE
Assuming the 90 days horizon Small Cap is expected to generate 2.74 times less return on investment than SPACE. But when comparing it to its historical volatility, Small Cap Core is 2.94 times less risky than SPACE. It trades about 0.23 of its potential returns per unit of risk. SPACE is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 39.00 in SPACE on August 26, 2024 and sell it today you would earn a total of 9.00 from holding SPACE or generate 23.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. SPACE
Performance |
| Timeline |
| Small Cap Core |
| SPACE |
Small Cap and SPACE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and SPACE
The main advantage of trading using opposite Small Cap and SPACE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, SPACE 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 SPACE will offset losses from the drop in SPACE'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 |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
Other Complementary Tools
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine |