Correlation Between Growth Income and Small Cap
Can any of the company-specific risk be diversified away by investing in both Growth Income 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 Growth Income and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Income Fund and Small Cap Stock, you can compare the effects of market volatilities on Growth Income 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 Growth Income with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Income and Small Cap.
Diversification Opportunities for Growth Income and Small Cap
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Growth and Small is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Growth Income Fund 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 Growth Income 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 Growth Income Fund 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 Growth Income i.e., Growth Income and Small Cap go up and down completely randomly.
Pair Corralation between Growth Income and Small Cap
Assuming the 90 days horizon Growth Income Fund is expected to generate 0.75 times more return on investment than Small Cap. However, Growth Income Fund is 1.33 times less risky than Small Cap. It trades about 0.14 of its potential returns per unit of risk. Small Cap Stock is currently generating about -0.06 per unit of risk. If you would invest 3,469 in Growth Income Fund on November 18, 2024 and sell it today you would earn a total of 64.00 from holding Growth Income Fund or generate 1.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Income Fund vs. Small Cap Stock
Performance |
| Timeline |
| Growth Income |
| Small Cap Stock |
Growth Income and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Income and Small Cap
The main advantage of trading using opposite Growth Income and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Income 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.| Growth Income vs. Mutual Of America | Growth Income vs. Balanced Allocation Fund | Growth Income vs. Rational Strategic Allocation | Growth Income vs. Dodge Cox Stock |
| Small Cap vs. Transamerica Asset Allocation | Small Cap vs. Guidemark Large Cap | Small Cap vs. Enhanced Large Pany | Small Cap vs. Mutual Of America |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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