Correlation Between Value Fund and Small Cap
Can any of the company-specific risk be diversified away by investing in both Value Fund and Small Cap 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 Value Fund and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Fund Value and Small Cap Stock, you can compare the effects of market volatilities on Value Fund and Small Cap 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 Value Fund with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and Small Cap.
Diversification Opportunities for Value Fund and Small Cap
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Value and Small is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund Value and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Value Fund 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 Value Fund Value are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Value Fund i.e., Value Fund and Small Cap go up and down completely randomly.
Pair Corralation between Value Fund and Small Cap
Assuming the 90 days horizon Value Fund Value is expected to generate 0.55 times more return on investment than Small Cap. However, Value Fund Value is 1.83 times less risky than Small Cap. It trades about 0.13 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.05 per unit of risk. If you would invest 1,826 in Value Fund Value on August 25, 2024 and sell it today you would earn a total of 401.00 from holding Value Fund Value or generate 21.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Value Fund Value vs. Small Cap Stock
Performance |
| Timeline |
| Value Fund Value |
| Small Cap Stock |
Value Fund and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Value Fund and Small Cap
The main advantage of trading using opposite Value Fund and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Fund position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Value Fund vs. T Rowe Price | Value Fund vs. Praxis Growth Index | Value Fund vs. Pioneer Fundamental Growth | Value Fund vs. T Rowe Price |
| Small Cap vs. Income Fund Income | Small Cap vs. Usaa Nasdaq 100 | Small Cap vs. Victory Diversified Stock | Small Cap vs. Intermediate Term Bond 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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