Correlation Between Small Cap and Growth Opportunities
Can any of the company-specific risk be diversified away by investing in both Small Cap and Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities Fund, you can compare the effects of market volatilities on Small Cap and Growth Opportunities 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 Growth Opportunities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Growth Opportunities.
Diversification Opportunities for Small Cap and Growth Opportunities
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and GROWTH is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Growth Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Opportunities 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 Growth Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Opportunities has no effect on the direction of Small Cap i.e., Small Cap and Growth Opportunities go up and down completely randomly.
Pair Corralation between Small Cap and Growth Opportunities
Assuming the 90 days horizon Small Cap Stock is expected to generate 1.52 times more return on investment than Growth Opportunities. However, Small Cap is 1.52 times more volatile than Growth Opportunities Fund. It trades about 0.21 of its potential returns per unit of risk. Growth Opportunities Fund is currently generating about 0.16 per unit of risk. If you would invest 1,415 in Small Cap Stock on August 31, 2024 and sell it today you would earn a total of 110.00 from holding Small Cap Stock or generate 7.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Growth Opportunities Fund
Performance |
| Timeline |
| Small Cap Stock |
| Growth Opportunities |
Small Cap and Growth Opportunities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Growth Opportunities
The main advantage of trading using opposite Small Cap and Growth Opportunities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Growth Opportunities 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 Growth Opportunities will offset losses from the drop in Growth Opportunities' long position.The idea behind Small Cap Stock and Growth Opportunities Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Growth Opportunities vs. Europacific Growth Fund | Growth Opportunities vs. Washington Mutual Investors | Growth Opportunities vs. Capital World Growth | Growth Opportunities vs. HUMANA INC |
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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