Correlation Between Small Cap and Sustainable Equity
Can any of the company-specific risk be diversified away by investing in both Small Cap and Sustainable Equity 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 Sustainable Equity 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 Sustainable Equity Fund, you can compare the effects of market volatilities on Small Cap and Sustainable Equity 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 Sustainable Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Sustainable Equity.
Diversification Opportunities for Small Cap and Sustainable Equity
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Sustainable is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Sustainable Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sustainable Equity 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 Sustainable Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sustainable Equity has no effect on the direction of Small Cap i.e., Small Cap and Sustainable Equity go up and down completely randomly.
Pair Corralation between Small Cap and Sustainable Equity
Assuming the 90 days horizon Small Cap is expected to generate 1.56 times less return on investment than Sustainable Equity. In addition to that, Small Cap is 1.55 times more volatile than Sustainable Equity Fund. It trades about 0.05 of its total potential returns per unit of risk. Sustainable Equity Fund is currently generating about 0.12 per unit of volatility. If you would invest 4,719 in Sustainable Equity Fund on September 14, 2024 and sell it today you would earn a total of 1,172 from holding Sustainable Equity Fund or generate 24.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Small Cap Stock vs. Sustainable Equity Fund
Performance |
| Timeline |
| Small Cap Stock |
| Sustainable Equity |
Small Cap and Sustainable Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Sustainable Equity
The main advantage of trading using opposite Small Cap and Sustainable Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Sustainable Equity 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 Sustainable Equity will offset losses from the drop in Sustainable Equity's long position.| Small Cap vs. Guggenheim Managed Futures | Small Cap vs. Simt Multi Asset Inflation | Small Cap vs. Goldman Sachs Inflation | Small Cap vs. Loomis Sayles Inflation |
| Sustainable Equity vs. Jennison Natural Resources | Sustainable Equity vs. Short Oil Gas | Sustainable Equity vs. Adams Natural Resources | Sustainable Equity vs. Gmo Resources |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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