Correlation Between Spring Valley and Small Cap
Can any of the company-specific risk be diversified away by investing in both Spring Valley 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 Spring Valley and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spring Valley Acquisition and Small Cap Core, you can compare the effects of market volatilities on Spring Valley 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 Spring Valley with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spring Valley and Small Cap.
Diversification Opportunities for Spring Valley and Small Cap
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Spring and Small is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Spring Valley Acquisition 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 Spring Valley 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 Spring Valley Acquisition 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 Spring Valley i.e., Spring Valley and Small Cap go up and down completely randomly.
Pair Corralation between Spring Valley and Small Cap
Given the investment horizon of 90 days Spring Valley is expected to generate 3.01 times less return on investment than Small Cap. But when comparing it to its historical volatility, Spring Valley Acquisition is 5.41 times less risky than Small Cap. It trades about 0.1 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,093 in Small Cap Core on August 26, 2024 and sell it today you would earn a total of 369.00 from holding Small Cap Core or generate 33.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Spring Valley Acquisition vs. Small Cap Core
Performance |
| Timeline |
| Spring Valley Acquisition |
| Small Cap Core |
Spring Valley and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spring Valley and Small Cap
The main advantage of trading using opposite Spring Valley and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spring Valley 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.The idea behind Spring Valley Acquisition and Small Cap Core pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Small Cap vs. Aqr Diversified Arbitrage | Small Cap vs. Fidelity Advisor Diversified | Small Cap vs. Pimco Diversified Income | Small Cap vs. Evaluator Conservative Rms |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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