Correlation Between Small Cap and Ariel International
Can any of the company-specific risk be diversified away by investing in both Small Cap and Ariel International 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 Ariel International 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 Ariel International Fund, you can compare the effects of market volatilities on Small Cap and Ariel International 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 Ariel International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Ariel International.
Diversification Opportunities for Small Cap and Ariel International
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Ariel is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Ariel International Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ariel International 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 Ariel International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ariel International has no effect on the direction of Small Cap i.e., Small Cap and Ariel International go up and down completely randomly.
Pair Corralation between Small Cap and Ariel International
Assuming the 90 days horizon Small Cap Stock is expected to generate 1.69 times more return on investment than Ariel International. However, Small Cap is 1.69 times more volatile than Ariel International Fund. It trades about 0.05 of its potential returns per unit of risk. Ariel International Fund is currently generating about 0.03 per unit of risk. If you would invest 1,203 in Small Cap Stock on September 3, 2024 and sell it today you would earn a total of 326.00 from holding Small Cap Stock or generate 27.1% 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. Ariel International Fund
Performance |
| Timeline |
| Small Cap Stock |
| Ariel International |
Small Cap and Ariel International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Ariel International
The main advantage of trading using opposite Small Cap and Ariel International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Ariel International 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 Ariel International will offset losses from the drop in Ariel International's long position.| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index |
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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