Correlation Between Small Cap and Large Cap
Can any of the company-specific risk be diversified away by investing in both Small Cap and Large Cap 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 Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Growth Profund and Large Cap Growth Profund, you can compare the effects of market volatilities on Small Cap and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Large Cap.
Diversification Opportunities for Small Cap and Large Cap
Significant diversification
The 3 months correlation between Small and Large is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth Profund and Large Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth 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 Growth Profund are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Growth has no effect on the direction of Small Cap i.e., Small Cap and Large Cap go up and down completely randomly.
Pair Corralation between Small Cap and Large Cap
Assuming the 90 days horizon Small Cap Growth Profund is expected to generate 0.94 times more return on investment than Large Cap. However, Small Cap Growth Profund is 1.07 times less risky than Large Cap. It trades about 0.04 of its potential returns per unit of risk. Large Cap Growth Profund is currently generating about 0.04 per unit of risk. If you would invest 11,221 in Small Cap Growth Profund on October 20, 2024 and sell it today you would earn a total of 91.00 from holding Small Cap Growth Profund or generate 0.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Small Cap Growth Profund vs. Large Cap Growth Profund
Performance |
| Timeline |
| Small Cap Growth |
| Large Cap Growth |
Small Cap and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Large Cap
The main advantage of trading using opposite Small Cap and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.| Small Cap vs. Small Cap Value Profund | Small Cap vs. Mid Cap Growth Profund | Small Cap vs. Mid Cap Value Profund | Small Cap vs. Small Cap Profund Small Cap |
| Large Cap vs. Mesirow Financial Small | Large Cap vs. Financial Industries Fund | Large Cap vs. Fidelity Advisor Financial | Large Cap vs. Putnam Global Financials |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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