Correlation Between Small-cap Value and Mid-cap Value
Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Mid-cap Value 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 Mid-cap Value 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 Mid Cap Value Profund, you can compare the effects of market volatilities on Small-cap Value and Mid-cap Value 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 Mid-cap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Mid-cap Value.
Diversification Opportunities for Small-cap Value and Mid-cap Value
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small-cap and Mid-cap is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Mid Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value 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 Mid-cap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Small-cap Value i.e., Small-cap Value and Mid-cap Value go up and down completely randomly.
Pair Corralation between Small-cap Value and Mid-cap Value
Assuming the 90 days horizon Small Cap Value Profund is expected to generate 1.33 times more return on investment than Mid-cap Value. However, Small-cap Value is 1.33 times more volatile than Mid Cap Value Profund. It trades about 0.23 of its potential returns per unit of risk. Mid Cap Value Profund is currently generating about 0.26 per unit of risk. If you would invest 8,534 in Small Cap Value Profund on August 30, 2024 and sell it today you would earn a total of 746.00 from holding Small Cap Value Profund or generate 8.74% 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. Mid Cap Value Profund
Performance |
| Timeline |
| Small Cap Value |
| Mid Cap Value |
Small-cap Value and Mid-cap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-cap Value and Mid-cap Value
The main advantage of trading using opposite Small-cap Value and Mid-cap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value position performs unexpectedly, Mid-cap Value 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 Mid-cap Value will offset losses from the drop in Mid-cap Value's long position.| Small-cap Value vs. Short Real Estate | Small-cap Value vs. Short Real Estate | Small-cap Value vs. Ultrashort Mid Cap Profund | Small-cap Value vs. Ultrashort Mid Cap Profund |
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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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