Correlation Between Small Cap and Alternative Credit
Can any of the company-specific risk be diversified away by investing in both Small Cap and Alternative Credit 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 Alternative Credit 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 Alternative Credit Income, you can compare the effects of market volatilities on Small Cap and Alternative Credit 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 Alternative Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Alternative Credit.
Diversification Opportunities for Small Cap and Alternative Credit
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Alternative is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Alternative Credit Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternative Credit Income 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 Alternative Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternative Credit Income has no effect on the direction of Small Cap i.e., Small Cap and Alternative Credit go up and down completely randomly.
Pair Corralation between Small Cap and Alternative Credit
Assuming the 90 days horizon Small Cap Core is expected to generate 4.75 times more return on investment than Alternative Credit. However, Small Cap is 4.75 times more volatile than Alternative Credit Income. It trades about 0.08 of its potential returns per unit of risk. Alternative Credit Income is currently generating about 0.08 per unit of risk. If you would invest 1,067 in Small Cap Core on August 30, 2024 and sell it today you would earn a total of 444.00 from holding Small Cap Core or generate 41.61% 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. Alternative Credit Income
Performance |
| Timeline |
| Small Cap Core |
| Alternative Credit Income |
Small Cap and Alternative Credit Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Alternative Credit
The main advantage of trading using opposite Small Cap and Alternative Credit positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Alternative Credit 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 Alternative Credit will offset losses from the drop in Alternative Credit's long position.| Small Cap vs. Scharf Global Opportunity | Small Cap vs. Ms Global Fixed | Small Cap vs. Barings Global Floating | Small Cap vs. Ab Global Bond |
| Alternative Credit vs. Aig Government Money | Alternative Credit vs. Blackrock Government Bond | Alternative Credit vs. Dws Government Money | Alternative Credit vs. Franklin Adjustable Government |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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