Correlation Between Small Cap and Old Dominion
Can any of the company-specific risk be diversified away by investing in both Small Cap and Old Dominion 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 Old Dominion 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 Old Dominion Freight, you can compare the effects of market volatilities on Small Cap and Old Dominion 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 Old Dominion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Old Dominion.
Diversification Opportunities for Small Cap and Old Dominion
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Old is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Old Dominion Freight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Dominion Freight 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 Old Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Dominion Freight has no effect on the direction of Small Cap i.e., Small Cap and Old Dominion go up and down completely randomly.
Pair Corralation between Small Cap and Old Dominion
Assuming the 90 days horizon Small Cap Core is expected to generate 0.61 times more return on investment than Old Dominion. However, Small Cap Core is 1.63 times less risky than Old Dominion. It trades about 0.09 of its potential returns per unit of risk. Old Dominion Freight is currently generating about 0.04 per unit of risk. If you would invest 1,131 in Small Cap Core on August 26, 2024 and sell it today you would earn a total of 355.00 from holding Small Cap Core or generate 31.39% 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. Old Dominion Freight
Performance |
| Timeline |
| Small Cap Core |
| Old Dominion Freight |
Small Cap and Old Dominion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Old Dominion
The main advantage of trading using opposite Small Cap and Old Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Old Dominion 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 Old Dominion will offset losses from the drop in Old Dominion'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 |
| Old Dominion vs. ArcBest Corp | Old Dominion vs. Marten Transport | Old Dominion vs. Werner Enterprises | Old Dominion vs. Knight Transportation |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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