Correlation Between Large Capital and Small Cap
Can any of the company-specific risk be diversified away by investing in both Large Capital 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 Large Capital and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Capital Growth and Small Cap Special, you can compare the effects of market volatilities on Large Capital 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 Large Capital with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Capital and Small Cap.
Diversification Opportunities for Large Capital and Small Cap
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Large and Small is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Large Capital Growth and Small Cap Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Special and Large Capital 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 Large Capital Growth 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 Special has no effect on the direction of Large Capital i.e., Large Capital and Small Cap go up and down completely randomly.
Pair Corralation between Large Capital and Small Cap
Assuming the 90 days horizon Large Capital Growth is expected to generate 0.81 times more return on investment than Small Cap. However, Large Capital Growth is 1.23 times less risky than Small Cap. It trades about 0.07 of its potential returns per unit of risk. Small Cap Special is currently generating about -0.07 per unit of risk. If you would invest 2,144 in Large Capital Growth on November 18, 2024 and sell it today you would earn a total of 21.00 from holding Large Capital Growth or generate 0.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Capital Growth vs. Small Cap Special
Performance |
| Timeline |
| Large Capital Growth |
| Small Cap Special |
Large Capital and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Capital and Small Cap
The main advantage of trading using opposite Large Capital and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Capital 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.| Large Capital vs. Artisan Select Equity | Large Capital vs. Enhanced Fixed Income | Large Capital vs. Doubleline Core Fixed | Large Capital vs. Dreyfusstandish Global Fixed |
| Small Cap vs. Guidemark Large Cap | Small Cap vs. Tax Managed Large Cap | Small Cap vs. Knights Of Umbus | Small Cap vs. Fidelity Large Cap |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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