Correlation Between Small Cap and Global Fixed
Can any of the company-specific risk be diversified away by investing in both Small Cap and Global Fixed 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 Global Fixed 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 Global Fixed Income, you can compare the effects of market volatilities on Small Cap and Global Fixed 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 Global Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Global Fixed.
Diversification Opportunities for Small Cap and Global Fixed
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Small and Global is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Global Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Fixed Income 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 Global Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Fixed Income has no effect on the direction of Small Cap i.e., Small Cap and Global Fixed go up and down completely randomly.
Pair Corralation between Small Cap and Global Fixed
Assuming the 90 days horizon Small Cap Stock is expected to generate 5.22 times more return on investment than Global Fixed. However, Small Cap is 5.22 times more volatile than Global Fixed Income. It trades about 0.2 of its potential returns per unit of risk. Global Fixed Income is currently generating about 0.17 per unit of risk. If you would invest 1,327 in Small Cap Stock on October 23, 2024 and sell it today you would earn a total of 51.00 from holding Small Cap Stock or generate 3.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 94.74% |
| Values | Daily Returns |
Small Cap Stock vs. Global Fixed Income
Performance |
| Timeline |
| Small Cap Stock |
| Global Fixed Income |
Small Cap and Global Fixed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Global Fixed
The main advantage of trading using opposite Small Cap and Global Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Global Fixed 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 Global Fixed will offset losses from the drop in Global Fixed's long position.| Small Cap vs. Locorr Market Trend | Small Cap vs. Goldman Sachs Local | Small Cap vs. Oklahoma College Savings | Small Cap vs. Ab All Market |
| Global Fixed vs. Small Pany Growth | Global Fixed vs. Hunter Small Cap | Global Fixed vs. Df Dent Small | Global Fixed vs. Touchstone 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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