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
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Inflation is 0.79. 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 Company is expected to generate 1.12 times less return on investment than Inflation Protected. In addition to that, Small Company is 3.0 times more volatile than Inflation Protected Bond Fund. It trades about 0.01 of its total potential returns per unit of risk. Inflation Protected Bond Fund is currently generating about 0.04 per unit of volatility. If you would invest 921.00 in Inflation Protected Bond Fund on January 24, 2025 and sell it today you would earn a total of 79.00 from holding Inflation Protected Bond Fund or generate 8.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| 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. Wells Fargo Advantage | Small Company vs. Wells Fargo Advantage | Small Company vs. Wells Fargo Advantage | Small Company vs. Wells Fargo Ultra |
| Inflation Protected vs. Ivy Natural Resources | Inflation Protected vs. Alpsalerian Energy Infrastructure | Inflation Protected vs. Salient Mlp Energy | Inflation Protected vs. Salient Mlp Energy |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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