Correlation Between Small Cap and Small Pany
Can any of the company-specific risk be diversified away by investing in both Small 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 Small 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 Small Cap Stock and Small Pany Growth, you can compare the effects of market volatilities on Small 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 Small Cap with a short position of Small Pany. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Small Pany.
Diversification Opportunities for Small Cap and Small Pany
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Small is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock 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 Small 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 Small Cap Stock 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 Small Cap i.e., Small Cap and Small Pany go up and down completely randomly.
Pair Corralation between Small Cap and Small Pany
Assuming the 90 days horizon Small Cap is expected to generate 2.56 times less return on investment than Small Pany. But when comparing it to its historical volatility, Small Cap Stock is 1.73 times less risky than Small Pany. It trades about 0.06 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 433.00 in Small Pany Growth on August 28, 2024 and sell it today you would earn a total of 463.00 from holding Small Pany Growth or generate 106.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Small Pany Growth
Performance |
| Timeline |
| Small Cap Stock |
| Small Pany Growth |
Small Cap and Small Pany Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Small Pany
The main advantage of trading using opposite Small Cap and Small Pany positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small 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.| Small Cap vs. Capital Growth Fund | Small Cap vs. Emerging Markets Fund | Small Cap vs. High Income Fund | Small Cap vs. International Fund International |
| Small Pany vs. International Equity Portfolio | Small Pany vs. Municipal Bond Fund | Small Pany vs. Global Advantage Portfolio | Small Pany vs. Advantage Portfolio Class |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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