Correlation Between Small Capitalization and Salient Alternative
Can any of the company-specific risk be diversified away by investing in both Small Capitalization and Salient Alternative 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 Capitalization and Salient Alternative into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Capitalization Portfolio and Salient Alternative Beta, you can compare the effects of market volatilities on Small Capitalization and Salient Alternative 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 Capitalization with a short position of Salient Alternative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Salient Alternative.
Diversification Opportunities for Small Capitalization and Salient Alternative
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Salient is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Salient Alternative Beta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salient Alternative Beta and Small Capitalization 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 Capitalization Portfolio are associated (or correlated) with Salient Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salient Alternative Beta has no effect on the direction of Small Capitalization i.e., Small Capitalization and Salient Alternative go up and down completely randomly.
Pair Corralation between Small Capitalization and Salient Alternative
Assuming the 90 days horizon Small Capitalization Portfolio is expected to under-perform the Salient Alternative. In addition to that, Small Capitalization is 3.35 times more volatile than Salient Alternative Beta. It trades about -0.01 of its total potential returns per unit of risk. Salient Alternative Beta is currently generating about 0.06 per unit of volatility. If you would invest 1,031 in Salient Alternative Beta on August 29, 2024 and sell it today you would earn a total of 214.00 from holding Salient Alternative Beta or generate 20.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Capitalization Portfolio vs. Salient Alternative Beta
Performance |
| Timeline |
| Small Capitalization |
| Salient Alternative Beta |
Small Capitalization and Salient Alternative Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Capitalization and Salient Alternative
The main advantage of trading using opposite Small Capitalization and Salient Alternative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization position performs unexpectedly, Salient Alternative 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 Salient Alternative will offset losses from the drop in Salient Alternative's long position.| Small Capitalization vs. Mid Cap Growth | Small Capitalization vs. Growth Fund Of | Small Capitalization vs. Smallcap Growth Fund | Small Capitalization vs. Artisan Small Cap |
| Salient Alternative vs. Aqr Equity Market | Salient Alternative vs. Barings Emerging Markets | Salient Alternative vs. Artisan Emerging Markets | Salient Alternative vs. Pace International Emerging |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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