Correlation Between Small Capitalization and Energy Basic
Can any of the company-specific risk be diversified away by investing in both Small Capitalization and Energy Basic 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 Energy Basic 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 Energy Basic Materials, you can compare the effects of market volatilities on Small Capitalization and Energy Basic 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 Energy Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Energy Basic.
Diversification Opportunities for Small Capitalization and Energy Basic
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SMALL and Energy is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials 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 Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Small Capitalization i.e., Small Capitalization and Energy Basic go up and down completely randomly.
Pair Corralation between Small Capitalization and Energy Basic
Assuming the 90 days horizon Small Capitalization Portfolio is expected to under-perform the Energy Basic. In addition to that, Small Capitalization is 1.51 times more volatile than Energy Basic Materials. It trades about -0.02 of its total potential returns per unit of risk. Energy Basic Materials is currently generating about 0.15 per unit of volatility. If you would invest 1,287 in Energy Basic Materials on November 6, 2024 and sell it today you would earn a total of 29.00 from holding Energy Basic Materials or generate 2.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Capitalization Portfolio vs. Energy Basic Materials
Performance |
| Timeline |
| Small Capitalization |
| Energy Basic Materials |
Small Capitalization and Energy Basic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Capitalization and Energy Basic
The main advantage of trading using opposite Small Capitalization and Energy Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization position performs unexpectedly, Energy Basic 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 Energy Basic will offset losses from the drop in Energy Basic's long position.| Small Capitalization vs. Goldman Sachs High | Small Capitalization vs. Aqr Risk Parity | Small Capitalization vs. Rbc Bluebay Global | Small Capitalization vs. Ab High Income |
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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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