Correlation Between Aggressive Growth and Small Cap
Can any of the company-specific risk be diversified away by investing in both Aggressive Growth 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 Aggressive Growth and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aggressive Growth Fund and Small Cap Stock, you can compare the effects of market volatilities on Aggressive Growth 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 Aggressive Growth with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Growth and Small Cap.
Diversification Opportunities for Aggressive Growth and Small Cap
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Aggressive and Small is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Growth Fund and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Aggressive Growth 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 Aggressive Growth 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 Stock has no effect on the direction of Aggressive Growth i.e., Aggressive Growth and Small Cap go up and down completely randomly.
Pair Corralation between Aggressive Growth and Small Cap
Assuming the 90 days horizon Aggressive Growth Fund is expected to generate 0.93 times more return on investment than Small Cap. However, Aggressive Growth Fund is 1.07 times less risky than Small Cap. It trades about 0.12 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.08 per unit of risk. If you would invest 5,047 in Aggressive Growth Fund on August 25, 2024 and sell it today you would earn a total of 1,952 from holding Aggressive Growth Fund or generate 38.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aggressive Growth Fund vs. Small Cap Stock
Performance |
| Timeline |
| Aggressive Growth |
| Small Cap Stock |
Aggressive Growth and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aggressive Growth and Small Cap
The main advantage of trading using opposite Aggressive Growth and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aggressive Growth 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.| Aggressive Growth vs. International Fund International | Aggressive Growth vs. Small Cap Stock | Aggressive Growth vs. Income Stock Fund | Aggressive Growth vs. Emerging Markets Fund |
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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