Correlation Between South32 and Small Cap
Can any of the company-specific risk be diversified away by investing in both South32 and Small 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 South32 and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between South32 Limited and Small Cap Core, you can compare the effects of market volatilities on South32 and Small 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 South32 with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and Small Cap.
Diversification Opportunities for South32 and Small Cap
Very weak diversification
The 3 months correlation between South32 and Small is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding South32 Limited and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and South32 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 South32 Limited are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of South32 i.e., South32 and Small Cap go up and down completely randomly.
Pair Corralation between South32 and Small Cap
Assuming the 90 days horizon South32 is expected to generate 3.2 times less return on investment than Small Cap. In addition to that, South32 is 3.0 times more volatile than Small Cap Core. It trades about 0.01 of its total potential returns per unit of risk. Small Cap Core is currently generating about 0.07 per unit of volatility. If you would invest 1,139 in Small Cap Core on August 31, 2024 and sell it today you would earn a total of 359.00 from holding Small Cap Core or generate 31.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 73.46% |
| Values | Daily Returns |
South32 Limited vs. Small Cap Core
Performance |
| Timeline |
| South32 Limited |
| Small Cap Core |
South32 and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with South32 and Small Cap
The main advantage of trading using opposite South32 and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, Small 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 Small Cap will offset losses from the drop in Small Cap's long position.| South32 vs. Liontown Resources Limited | South32 vs. ATT Inc | South32 vs. Merck Company | South32 vs. Walt Disney |
| Small Cap vs. Pimco Funds | Small Cap vs. T Rowe Price | Small Cap vs. Prudential Government Money | Small Cap vs. Transamerica Funds |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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