Correlation Between Small Cap and Inflation Protected
Can any of the company-specific risk be diversified away by investing in both Small Cap and Inflation Protected 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 Inflation Protected into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Index and Inflation Protected Fund, you can compare the effects of market volatilities on Small Cap and Inflation Protected 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 Inflation Protected. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Inflation Protected.
Diversification Opportunities for Small Cap and Inflation Protected
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Inflation is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Index and Inflation Protected Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protected 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 Index are associated (or correlated) with Inflation Protected. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protected has no effect on the direction of Small Cap i.e., Small Cap and Inflation Protected go up and down completely randomly.
Pair Corralation between Small Cap and Inflation Protected
Assuming the 90 days horizon Small Cap Index is expected to generate 6.07 times more return on investment than Inflation Protected. However, Small Cap is 6.07 times more volatile than Inflation Protected Fund. It trades about 0.25 of its potential returns per unit of risk. Inflation Protected Fund is currently generating about -0.02 per unit of risk. If you would invest 1,649 in Small Cap Index on August 27, 2024 and sell it today you would earn a total of 147.00 from holding Small Cap Index or generate 8.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Index vs. Inflation Protected Fund
Performance |
| Timeline |
| Small Cap Index |
| Inflation Protected |
Small Cap and Inflation Protected Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Inflation Protected
The main advantage of trading using opposite Small Cap and Inflation Protected positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Inflation Protected 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 Inflation Protected will offset losses from the drop in Inflation Protected's long position.| Small Cap vs. Lifestyle Ii Moderate | Small Cap vs. American Funds Retirement | Small Cap vs. Pro Blend Moderate Term | Small Cap vs. Jp Morgan Smartretirement |
| Inflation Protected vs. Mid Cap Index | Inflation Protected vs. Mid Cap Strategic | Inflation Protected vs. Valic Company I | Inflation Protected vs. Valic Company I |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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