Correlation Between Small Cap and High Yield
Can any of the company-specific risk be diversified away by investing in both Small Cap and High Yield 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 High Yield 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 High Yield Municipal Fund, you can compare the effects of market volatilities on Small Cap and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and High Yield.
Diversification Opportunities for Small Cap and High Yield
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Small and High is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal 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 High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of Small Cap i.e., Small Cap and High Yield go up and down completely randomly.
Pair Corralation between Small Cap and High Yield
Assuming the 90 days horizon Small Cap Stock is expected to generate 4.28 times more return on investment than High Yield. However, Small Cap is 4.28 times more volatile than High Yield Municipal Fund. It trades about 0.05 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.07 per unit of risk. If you would invest 1,127 in Small Cap Stock on September 13, 2024 and sell it today you would earn a total of 370.00 from holding Small Cap Stock or generate 32.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Small Cap Stock vs. High Yield Municipal Fund
Performance |
| Timeline |
| Small Cap Stock |
| High Yield Municipal |
Small Cap and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and High Yield
The main advantage of trading using opposite Small Cap and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield'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 |
| High Yield vs. Old Westbury Municipal | High Yield vs. Transamerica Intermediate Muni | High Yield vs. Morningstar Municipal Bond | High Yield vs. Baird Strategic Municipal |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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