Correlation Between Small Cap and Washington Mutual
Can any of the company-specific risk be diversified away by investing in both Small Cap and Washington Mutual 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 Washington Mutual 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 Washington Mutual Investors, you can compare the effects of market volatilities on Small Cap and Washington Mutual 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 Washington Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Washington Mutual.
Diversification Opportunities for Small Cap and Washington Mutual
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Washington is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Washington Mutual Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Mutual 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 Washington Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Mutual has no effect on the direction of Small Cap i.e., Small Cap and Washington Mutual go up and down completely randomly.
Pair Corralation between Small Cap and Washington Mutual
Assuming the 90 days horizon Small Cap is expected to generate 1.12 times less return on investment than Washington Mutual. In addition to that, Small Cap is 1.79 times more volatile than Washington Mutual Investors. It trades about 0.05 of its total potential returns per unit of risk. Washington Mutual Investors is currently generating about 0.11 per unit of volatility. If you would invest 4,614 in Washington Mutual Investors on September 13, 2024 and sell it today you would earn a total of 1,927 from holding Washington Mutual Investors or generate 41.76% 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. Washington Mutual Investors
Performance |
| Timeline |
| Small Cap Stock |
| Washington Mutual |
Small Cap and Washington Mutual Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Washington Mutual
The main advantage of trading using opposite Small Cap and Washington Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Washington Mutual 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 Washington Mutual will offset losses from the drop in Washington Mutual's long position.| Small Cap vs. Goldman Sachs Real | Small Cap vs. Fidelity Real Estate | Small Cap vs. Redwood Real Estate | Small Cap vs. Vy Clarion Real |
| Washington Mutual vs. Massmutual Premier Diversified | Washington Mutual vs. Small Cap Stock | Washington Mutual vs. Sentinel Small Pany | Washington Mutual vs. Davenport Small Cap |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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