Correlation Between Small Capitalization and Moderate Balanced
Can any of the company-specific risk be diversified away by investing in both Small Capitalization and Moderate Balanced 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 Moderate Balanced 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 Moderate Balanced Allocation, you can compare the effects of market volatilities on Small Capitalization and Moderate Balanced 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 Moderate Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Moderate Balanced.
Diversification Opportunities for Small Capitalization and Moderate Balanced
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Moderate is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Moderate Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Balanced 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 Moderate Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Balanced has no effect on the direction of Small Capitalization i.e., Small Capitalization and Moderate Balanced go up and down completely randomly.
Pair Corralation between Small Capitalization and Moderate Balanced
Assuming the 90 days horizon Small Capitalization Portfolio is expected to generate 2.32 times more return on investment than Moderate Balanced. However, Small Capitalization is 2.32 times more volatile than Moderate Balanced Allocation. It trades about 0.04 of its potential returns per unit of risk. Moderate Balanced Allocation is currently generating about 0.06 per unit of risk. If you would invest 696.00 in Small Capitalization Portfolio on August 29, 2024 and sell it today you would earn a total of 151.00 from holding Small Capitalization Portfolio or generate 21.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Capitalization Portfolio vs. Moderate Balanced Allocation
Performance |
| Timeline |
| Small Capitalization |
| Moderate Balanced |
Small Capitalization and Moderate Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Capitalization and Moderate Balanced
The main advantage of trading using opposite Small Capitalization and Moderate Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization position performs unexpectedly, Moderate Balanced 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 Moderate Balanced will offset losses from the drop in Moderate Balanced's long position.| Small Capitalization vs. Short Precious Metals | Small Capitalization vs. Invesco Gold Special | Small Capitalization vs. Franklin Gold Precious | Small Capitalization vs. Gold Portfolio Fidelity |
| Moderate Balanced vs. T Rowe Price | Moderate Balanced vs. T Rowe Price | Moderate Balanced vs. Vanguard Equity Income | Moderate Balanced vs. Touchstone Large Cap |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
Other Complementary Tools
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments |