Correlation Between Short-term Government and Small Cap
Can any of the company-specific risk be diversified away by investing in both Short-term Government 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 Short-term Government and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and Small Cap Growth, you can compare the effects of market volatilities on Short-term Government 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 Short-term Government with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Small Cap.
Diversification Opportunities for Short-term Government and Small Cap
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Short-term and Small is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Short-term Government 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 Short Term Government Fund 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 Growth has no effect on the direction of Short-term Government i.e., Short-term Government and Small Cap go up and down completely randomly.
Pair Corralation between Short-term Government and Small Cap
Assuming the 90 days horizon Short Term Government Fund is expected to generate 0.12 times more return on investment than Small Cap. However, Short Term Government Fund is 8.55 times less risky than Small Cap. It trades about 0.22 of its potential returns per unit of risk. Small Cap Growth is currently generating about -0.24 per unit of risk. If you would invest 907.00 in Short Term Government Fund on November 28, 2024 and sell it today you would earn a total of 5.00 from holding Short Term Government Fund or generate 0.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Short Term Government Fund vs. Small Cap Growth
Performance |
| Timeline |
| Short Term Government |
| Small Cap Growth |
Short-term Government and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Small Cap
The main advantage of trading using opposite Short-term Government and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government 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.| Short-term Government vs. Transamerica Funds | Short-term Government vs. Bbh Partner Fund | Short-term Government vs. T Rowe Price | Short-term Government vs. Rationalrgn Hedged Equity |
| Small Cap vs. Prudential Financial Services | Small Cap vs. Transamerica Financial Life | Small Cap vs. Gabelli Global Financial | Small Cap vs. Icon Financial Fund |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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