Correlation Between Growth Fund and Small Cap
Can any of the company-specific risk be diversified away by investing in both Growth 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 Growth 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 Growth Fund C and Small Cap Growth, you can compare the effects of market volatilities on Growth 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 Growth Fund with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Fund and Small Cap.
Diversification Opportunities for Growth Fund and Small Cap
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Growth and Small is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund C 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 Growth 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 Growth Fund C 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 Growth Fund i.e., Growth Fund and Small Cap go up and down completely randomly.
Pair Corralation between Growth Fund and Small Cap
Assuming the 90 days horizon Growth Fund C is expected to generate 0.94 times more return on investment than Small Cap. However, Growth Fund C is 1.07 times less risky than Small Cap. It trades about 0.09 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.07 per unit of risk. If you would invest 3,218 in Growth Fund C on August 30, 2024 and sell it today you would earn a total of 1,790 from holding Growth Fund C or generate 55.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Fund C vs. Small Cap Growth
Performance |
| Timeline |
| Growth Fund C |
| Small Cap Growth |
Growth Fund and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Fund and Small Cap
The main advantage of trading using opposite Growth Fund and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth 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.| Growth Fund vs. Victory Global Natural | Growth Fund vs. Ivy Natural Resources | Growth Fund vs. Alpsalerian Energy Infrastructure | Growth Fund vs. Clearbridge Energy Mlp |
| Small Cap vs. Pace High Yield | Small Cap vs. Morningstar Aggressive Growth | Small Cap vs. Strategic Allocation Aggressive | Small Cap vs. Western Asset High |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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