Correlation Between Small Capitalization and Small Cap
Can any of the company-specific risk be diversified away by investing in both Small Capitalization 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 Small Capitalization and Small Cap 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 Small Cap Stock, you can compare the effects of market volatilities on Small Capitalization 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 Small Capitalization with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Small Cap.
Diversification Opportunities for Small Capitalization and Small Cap
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Small is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock 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 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 Stock has no effect on the direction of Small Capitalization i.e., Small Capitalization and Small Cap go up and down completely randomly.
Pair Corralation between Small Capitalization and Small Cap
Assuming the 90 days horizon Small Capitalization Portfolio is expected to generate 1.01 times more return on investment than Small Cap. However, Small Capitalization is 1.01 times more volatile than Small Cap Stock. It trades about 0.06 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.05 per unit of risk. If you would invest 611.00 in Small Capitalization Portfolio on August 28, 2024 and sell it today you would earn a total of 242.00 from holding Small Capitalization Portfolio or generate 39.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Small Capitalization Portfolio vs. Small Cap Stock
Performance |
| Timeline |
| Small Capitalization |
| Small Cap Stock |
Small Capitalization and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Capitalization and Small Cap
The main advantage of trading using opposite Small Capitalization and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization 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.| Small Capitalization vs. Rationalpier 88 Convertible | Small Capitalization vs. Mirova Global Green | Small Capitalization vs. Multisector Bond Sma | Small Capitalization vs. Ms Global Fixed |
| Small Cap vs. Income Fund Income | Small Cap vs. Usaa Nasdaq 100 | Small Cap vs. Victory Diversified Stock | Small Cap vs. Intermediate Term Bond Fund |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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