Correlation Between Small Company and Inflation-protected
Can any of the company-specific risk be diversified away by investing in both Small Company and Inflation-protected 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 Company and Inflation-protected into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Pany Value and Inflation Protected Bond Fund, you can compare the effects of market volatilities on Small Company and Inflation-protected 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 Company with a short position of Inflation-protected. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Inflation-protected.
Diversification Opportunities for Small Company and Inflation-protected
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Inflation-protected is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Value and Inflation Protected Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protected and Small Company 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 Pany Value are associated (or correlated) with Inflation-protected. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protected has no effect on the direction of Small Company i.e., Small Company and Inflation-protected go up and down completely randomly.
Pair Corralation between Small Company and Inflation-protected
Assuming the 90 days horizon Small Pany Value is expected to generate 2.72 times more return on investment than Inflation-protected. However, Small Company is 2.72 times more volatile than Inflation Protected Bond Fund. It trades about 0.08 of its potential returns per unit of risk. Inflation Protected Bond Fund is currently generating about 0.14 per unit of risk. If you would invest 3,670 in Small Pany Value on September 3, 2024 and sell it today you would earn a total of 566.00 from holding Small Pany Value or generate 15.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Value vs. Inflation Protected Bond Fund
Performance |
| Timeline |
| Small Pany Value |
| Inflation Protected |
Small Company and Inflation-protected Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Inflation-protected
The main advantage of trading using opposite Small Company and Inflation-protected positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Inflation-protected 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 Inflation-protected will offset losses from the drop in Inflation-protected's long position.| Small Company vs. Schwab Treasury Money | Small Company vs. Matson Money Equity | Small Company vs. Dws Government Money | Small Company vs. Aig Government Money |
| Inflation-protected vs. American Funds Inflation | Inflation-protected vs. American Funds Inflation | Inflation-protected vs. American Funds Inflation | Inflation-protected vs. American Funds Inflation |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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