Correlation Between Small Cap and Inflation Protection
Can any of the company-specific risk be diversified away by investing in both Small Cap and Inflation Protection 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 Inflation Protection 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 Inflation Protection Fund, you can compare the effects of market volatilities on Small Cap and Inflation Protection 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 Inflation Protection. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Inflation Protection.
Diversification Opportunities for Small Cap and Inflation Protection
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Inflation is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Inflation Protection Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protection 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 Inflation Protection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protection has no effect on the direction of Small Cap i.e., Small Cap and Inflation Protection go up and down completely randomly.
Pair Corralation between Small Cap and Inflation Protection
Assuming the 90 days horizon Small Cap Stock is expected to generate 5.25 times more return on investment than Inflation Protection. However, Small Cap is 5.25 times more volatile than Inflation Protection Fund. It trades about 0.04 of its potential returns per unit of risk. Inflation Protection Fund is currently generating about -0.06 per unit of risk. If you would invest 1,300 in Small Cap Stock on November 3, 2024 and sell it today you would earn a total of 69.00 from holding Small Cap Stock or generate 5.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 65.32% |
| Values | Daily Returns |
Small Cap Stock vs. Inflation Protection Fund
Performance |
| Timeline |
| Small Cap Stock |
| Inflation Protection |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Small Cap and Inflation Protection Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Inflation Protection
The main advantage of trading using opposite Small Cap and Inflation Protection positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Inflation Protection 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 Inflation Protection will offset losses from the drop in Inflation Protection's long position.| Small Cap vs. Massmutual Premier High | Small Cap vs. Dreyfusstandish Global Fixed | Small Cap vs. Blrc Sgy Mnp | Small Cap vs. Gmo Emerging Ntry |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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