Correlation Between Small Cap and Nasdaq-100 Index
Can any of the company-specific risk be diversified away by investing in both Small Cap and Nasdaq-100 Index 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 Nasdaq-100 Index 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 Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Small Cap and Nasdaq-100 Index 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 Nasdaq-100 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Nasdaq-100 Index.
Diversification Opportunities for Small Cap and Nasdaq-100 Index
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Small and Nasdaq-100 is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index 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 Nasdaq-100 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Small Cap i.e., Small Cap and Nasdaq-100 Index go up and down completely randomly.
Pair Corralation between Small Cap and Nasdaq-100 Index
Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Nasdaq-100 Index. In addition to that, Small Cap is 1.01 times more volatile than Nasdaq 100 Index Fund. It trades about -0.27 of its total potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.06 per unit of volatility. If you would invest 5,196 in Nasdaq 100 Index Fund on November 27, 2024 and sell it today you would earn a total of 57.00 from holding Nasdaq 100 Index Fund or generate 1.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Nasdaq 100 Index Fund
Performance |
| Timeline |
| Small Cap Stock |
| Nasdaq 100 Index |
Small Cap and Nasdaq-100 Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Nasdaq-100 Index
The main advantage of trading using opposite Small Cap and Nasdaq-100 Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Nasdaq-100 Index 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 Nasdaq-100 Index will offset losses from the drop in Nasdaq-100 Index's long position.| Small Cap vs. Forum Real Estate | Small Cap vs. Redwood Real Estate | Small Cap vs. Baron Real Estate | Small Cap vs. Short Real Estate |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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