Correlation Between Small-cap Value and Small Cap
Can any of the company-specific risk be diversified away by investing in both Small-cap Value 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-cap Value 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 Cap Value Profund and Small Cap Equity, you can compare the effects of market volatilities on Small-cap Value 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-cap Value with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Small Cap.
Diversification Opportunities for Small-cap Value and Small Cap
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Small-cap and Small is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Small-cap Value 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 Cap Value Profund 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 Equity has no effect on the direction of Small-cap Value i.e., Small-cap Value and Small Cap go up and down completely randomly.
Pair Corralation between Small-cap Value and Small Cap
Assuming the 90 days horizon Small-cap Value is expected to generate 1.03 times less return on investment than Small Cap. In addition to that, Small-cap Value is 1.03 times more volatile than Small Cap Equity. It trades about 0.28 of its total potential returns per unit of risk. Small Cap Equity is currently generating about 0.29 per unit of volatility. If you would invest 1,852 in Small Cap Equity on September 4, 2024 and sell it today you would earn a total of 187.00 from holding Small Cap Equity or generate 10.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value Profund vs. Small Cap Equity
Performance |
| Timeline |
| Small Cap Value |
| Small Cap Equity |
Small-cap Value and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-cap Value and Small Cap
The main advantage of trading using opposite Small-cap Value and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value 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-cap Value vs. Small Cap Equity | Small-cap Value vs. Sarofim Equity | Small-cap Value vs. Artisan Select Equity | Small-cap Value vs. Gmo Global Equity |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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