Correlation Between Small Cap and Tile Shop
Can any of the company-specific risk be diversified away by investing in both Small Cap and Tile Shop 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 Tile Shop 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 Tile Shop Holdings, you can compare the effects of market volatilities on Small Cap and Tile Shop 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 Tile Shop. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Tile Shop.
Diversification Opportunities for Small Cap and Tile Shop
Poor diversification
The 3 months correlation between Small and Tile is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Tile Shop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tile Shop Holdings 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 Tile Shop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tile Shop Holdings has no effect on the direction of Small Cap i.e., Small Cap and Tile Shop go up and down completely randomly.
Pair Corralation between Small Cap and Tile Shop
Assuming the 90 days horizon Small Cap Core is expected to generate 0.66 times more return on investment than Tile Shop. However, Small Cap Core is 1.52 times less risky than Tile Shop. It trades about 0.06 of its potential returns per unit of risk. Tile Shop Holdings is currently generating about 0.0 per unit of risk. If you would invest 1,293 in Small Cap Core on August 27, 2024 and sell it today you would earn a total of 193.00 from holding Small Cap Core or generate 14.93% 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. Tile Shop Holdings
Performance |
| Timeline |
| Small Cap Core |
| Tile Shop Holdings |
Small Cap and Tile Shop Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Tile Shop
The main advantage of trading using opposite Small Cap and Tile Shop positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Tile Shop 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 Tile Shop will offset losses from the drop in Tile Shop's long position.| Small Cap vs. Pro Blend Moderate Term | Small Cap vs. Hartford Moderate Allocation | Small Cap vs. Qs Moderate Growth | Small Cap vs. Dimensional Retirement Income |
| Tile Shop vs. Kingfisher PLC ADR | Tile Shop vs. Haverty Furniture Companies | Tile Shop vs. Arhaus Inc | Tile Shop vs. Kirklands |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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