Correlation Between Small Cap and Intermediate Term
Can any of the company-specific risk be diversified away by investing in both Small Cap and Intermediate Term 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 Intermediate Term 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 Intermediate Term Bond Fund, you can compare the effects of market volatilities on Small Cap and Intermediate Term 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 Intermediate Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Intermediate Term.
Diversification Opportunities for Small Cap and Intermediate Term
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Intermediate is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Small Cap i.e., Small Cap and Intermediate Term go up and down completely randomly.
Pair Corralation between Small Cap and Intermediate Term
Assuming the 90 days horizon Small Cap Stock is expected to generate 3.36 times more return on investment than Intermediate Term. However, Small Cap is 3.36 times more volatile than Intermediate Term Bond Fund. It trades about 0.07 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.04 per unit of risk. If you would invest 1,150 in Small Cap Stock on August 26, 2024 and sell it today you would earn a total of 397.00 from holding Small Cap Stock or generate 34.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Intermediate Term Bond Fund
Performance |
| Timeline |
| Small Cap Stock |
| Intermediate Term Bond |
Small Cap and Intermediate Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Intermediate Term
The main advantage of trading using opposite Small Cap and Intermediate Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Intermediate Term 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 Intermediate Term will offset losses from the drop in Intermediate Term's long position.| Small Cap vs. Kinetics Spin Off And | Small Cap vs. T Rowe Price | Small Cap vs. Ms Global Fixed | Small Cap vs. Versatile Bond Portfolio |
| Intermediate Term vs. Capital Growth Fund | Intermediate Term vs. Emerging Markets Fund | Intermediate Term vs. High Income Fund | Intermediate Term vs. International Fund International |
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.
Other Complementary Tools
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Money Managers Screen money managers from public funds and ETFs managed around the world |