Correlation Between Value Fund and Small Cap
Can any of the company-specific risk be diversified away by investing in both Value Fund 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 Value Fund and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Fund A and Small Cap Value, you can compare the effects of market volatilities on Value Fund 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 Value Fund with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and Small Cap.
Diversification Opportunities for Value Fund and Small Cap
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Value and Small is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund A and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Value Fund 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 Value Fund A 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 Value has no effect on the direction of Value Fund i.e., Value Fund and Small Cap go up and down completely randomly.
Pair Corralation between Value Fund and Small Cap
Assuming the 90 days horizon Value Fund is expected to generate 1.52 times less return on investment than Small Cap. But when comparing it to its historical volatility, Value Fund A is 1.78 times less risky than Small Cap. It trades about 0.07 of its potential returns per unit of risk. Small Cap Value is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 855.00 in Small Cap Value on August 31, 2024 and sell it today you would earn a total of 226.00 from holding Small Cap Value or generate 26.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Value Fund A vs. Small Cap Value
Performance |
| Timeline |
| Value Fund A |
| Small Cap Value |
Value Fund and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Value Fund and Small Cap
The main advantage of trading using opposite Value Fund and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Fund 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.| Value Fund vs. Franklin Lifesmart Retirement | Value Fund vs. Transamerica Cleartrack Retirement | Value Fund vs. Blackrock Moderate Prepared | Value Fund vs. Multimanager Lifestyle Moderate |
| Small Cap vs. Asg Managed Futures | Small Cap vs. Nationwide Inflation Protected Securities | Small Cap vs. Aqr Managed Futures | Small Cap vs. Lord Abbett Inflation |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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