Correlation Between Small Cap and Moderate Duration
Can any of the company-specific risk be diversified away by investing in both Small Cap and Moderate Duration 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 Moderate Duration 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 Moderate Duration Fund, you can compare the effects of market volatilities on Small Cap and Moderate Duration 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 Moderate Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Moderate Duration.
Diversification Opportunities for Small Cap and Moderate Duration
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Moderate is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Moderate Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Duration 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 Moderate Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Duration has no effect on the direction of Small Cap i.e., Small Cap and Moderate Duration go up and down completely randomly.
Pair Corralation between Small Cap and Moderate Duration
Assuming the 90 days horizon Small Cap Stock is expected to generate 5.49 times more return on investment than Moderate Duration. However, Small Cap is 5.49 times more volatile than Moderate Duration Fund. It trades about 0.05 of its potential returns per unit of risk. Moderate Duration Fund is currently generating about 0.08 per unit of risk. If you would invest 1,299 in Small Cap Stock on September 12, 2024 and sell it today you would earn a total of 198.00 from holding Small Cap Stock or generate 15.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Small Cap Stock vs. Moderate Duration Fund
Performance |
| Timeline |
| Small Cap Stock |
| Moderate Duration |
Small Cap and Moderate Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Moderate Duration
The main advantage of trading using opposite Small Cap and Moderate Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Moderate Duration 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 Moderate Duration will offset losses from the drop in Moderate Duration's long position.| Small Cap vs. Shelton Emerging Markets | Small Cap vs. Kinetics Market Opportunities | Small Cap vs. Siit Emerging Markets | Small Cap vs. Investec Emerging Markets |
| Moderate Duration vs. Multimedia Portfolio Multimedia | Moderate Duration vs. Small Cap Stock | Moderate Duration vs. Commonwealth Global Fund | Moderate Duration vs. Ab Value Fund |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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