Correlation Between Small Cap and Old Westbury
Can any of the company-specific risk be diversified away by investing in both Small Cap and Old Westbury 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 Old Westbury 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 Old Westbury Short Term, you can compare the effects of market volatilities on Small Cap and Old Westbury 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 Old Westbury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Old Westbury.
Diversification Opportunities for Small Cap and Old Westbury
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Small and Old is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Old Westbury Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Westbury Short 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 Old Westbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Westbury Short has no effect on the direction of Small Cap i.e., Small Cap and Old Westbury go up and down completely randomly.
Pair Corralation between Small Cap and Old Westbury
Assuming the 90 days horizon Small Cap Stock is expected to generate 18.03 times more return on investment than Old Westbury. However, Small Cap is 18.03 times more volatile than Old Westbury Short Term. It trades about 0.13 of its potential returns per unit of risk. Old Westbury Short Term is currently generating about -0.05 per unit of risk. If you would invest 1,400 in Small Cap Stock on August 24, 2024 and sell it today you would earn a total of 61.00 from holding Small Cap Stock or generate 4.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Old Westbury Short Term
Performance |
| Timeline |
| Small Cap Stock |
| Old Westbury Short |
Small Cap and Old Westbury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Old Westbury
The main advantage of trading using opposite Small Cap and Old Westbury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Old Westbury 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 Old Westbury will offset losses from the drop in Old Westbury'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 |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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