Correlation Between Short Term and Small Cap
Can any of the company-specific risk be diversified away by investing in both Short Term 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 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 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 with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and Small Cap.
Diversification Opportunities for Short Term and Small Cap
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Short and Small is -0.49. 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 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 i.e., Short Term and Small Cap go up and down completely randomly.
Pair Corralation between Short Term and Small Cap
Assuming the 90 days horizon Short Term is expected to generate 6.01 times less return on investment than Small Cap. But when comparing it to its historical volatility, Short Term Government Fund is 8.77 times less risky than Small Cap. It trades about 0.11 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,719 in Small Cap Growth on August 27, 2024 and sell it today you would earn a total of 278.00 from holding Small Cap Growth or generate 16.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. Small Cap Growth
Performance |
| Timeline |
| Short Term Government |
| Small Cap Growth |
Short Term and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Term and Small Cap
The main advantage of trading using opposite Short Term and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term 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 vs. Fidelity Advisor Technology | Short Term vs. Global Technology Portfolio | Short Term vs. Biotechnology Ultrasector Profund | Short Term vs. Invesco Technology Fund |
| Small Cap vs. Small Cap Growth | Small Cap vs. Small Cap Growth | Small Cap vs. Baron International Growth |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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