Correlation Between Small Cap and Retirement Living
Can any of the company-specific risk be diversified away by investing in both Small Cap and Retirement Living 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 Retirement Living 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 Retirement Living Through, you can compare the effects of market volatilities on Small Cap and Retirement Living 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 Retirement Living. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Retirement Living.
Diversification Opportunities for Small Cap and Retirement Living
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Retirement is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Retirement Living Through in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retirement Living Through 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 Retirement Living. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retirement Living Through has no effect on the direction of Small Cap i.e., Small Cap and Retirement Living go up and down completely randomly.
Pair Corralation between Small Cap and Retirement Living
Assuming the 90 days horizon Small Cap Stock is expected to generate 2.49 times more return on investment than Retirement Living. However, Small Cap is 2.49 times more volatile than Retirement Living Through. It trades about 0.06 of its potential returns per unit of risk. Retirement Living Through is currently generating about 0.11 per unit of risk. If you would invest 1,366 in Small Cap Stock on September 3, 2024 and sell it today you would earn a total of 163.00 from holding Small Cap Stock or generate 11.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Retirement Living Through
Performance |
| Timeline |
| Small Cap Stock |
| Retirement Living Through |
Small Cap and Retirement Living Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Retirement Living
The main advantage of trading using opposite Small Cap and Retirement Living positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Retirement Living 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 Retirement Living will offset losses from the drop in Retirement Living'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 |
| Retirement Living vs. Vanguard Target Retirement | Retirement Living vs. American Funds 2030 | Retirement Living vs. American Funds 2030 | Retirement Living vs. American Funds 2030 |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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