Correlation Between Large Cap and Small Pany
Can any of the company-specific risk be diversified away by investing in both Large Cap and Small Pany 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 Large Cap and Small Pany into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Equity and Small Pany Growth, you can compare the effects of market volatilities on Large Cap and Small Pany 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 Large Cap with a short position of Small Pany. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Small Pany.
Diversification Opportunities for Large Cap and Small Pany
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Large and Small is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Equity and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Large Cap 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 Large Cap Equity are associated (or correlated) with Small Pany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Large Cap i.e., Large Cap and Small Pany go up and down completely randomly.
Pair Corralation between Large Cap and Small Pany
Assuming the 90 days horizon Large Cap is expected to generate 6.08 times less return on investment than Small Pany. But when comparing it to its historical volatility, Large Cap Equity is 2.34 times less risky than Small Pany. It trades about 0.21 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.55 of returns per unit of risk over similar time horizon. If you would invest 1,299 in Small Pany Growth on August 28, 2024 and sell it today you would earn a total of 328.00 from holding Small Pany Growth or generate 25.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Equity vs. Small Pany Growth
Performance |
| Timeline |
| Large Cap Equity |
| Small Pany Growth |
Large Cap and Small Pany Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Small Pany
The main advantage of trading using opposite Large Cap and Small Pany positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Small Pany 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 Pany will offset losses from the drop in Small Pany's long position.| Large Cap vs. Emerging Markets Equity | Large Cap vs. Global Fixed Income | Large Cap vs. Global Fixed Income | Large Cap vs. Global Fixed Income |
| Small Pany vs. Mid Cap Growth | Small Pany vs. Growth Portfolio Class | Small Pany vs. Morgan Stanley Multi | Small Pany vs. Emerging Markets Portfolio |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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