Correlation Between Small Cap and Virginia Bond
Can any of the company-specific risk be diversified away by investing in both Small Cap and Virginia Bond 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 Virginia Bond 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 Virginia Bond Fund, you can compare the effects of market volatilities on Small Cap and Virginia Bond 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 Virginia Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Virginia Bond.
Diversification Opportunities for Small Cap and Virginia Bond
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and Virginia is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Virginia Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virginia Bond 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 Virginia Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virginia Bond has no effect on the direction of Small Cap i.e., Small Cap and Virginia Bond go up and down completely randomly.
Pair Corralation between Small Cap and Virginia Bond
Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Virginia Bond. In addition to that, Small Cap is 7.07 times more volatile than Virginia Bond Fund. It trades about -0.09 of its total potential returns per unit of risk. Virginia Bond Fund is currently generating about 0.55 per unit of volatility. If you would invest 1,051 in Virginia Bond Fund on September 12, 2024 and sell it today you would earn a total of 17.00 from holding Virginia Bond Fund or generate 1.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Virginia Bond Fund
Performance |
| Timeline |
| Small Cap Stock |
| Virginia Bond |
Small Cap and Virginia Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Virginia Bond
The main advantage of trading using opposite Small Cap and Virginia Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Virginia Bond 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 Virginia Bond will offset losses from the drop in Virginia Bond'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 |
| Virginia Bond vs. Eagle Mlp Strategy | Virginia Bond vs. Origin Emerging Markets | Virginia Bond vs. Pace International Emerging | Virginia Bond vs. Franklin Emerging Market |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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