Correlation Between Small Cap and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Small Cap and Mid 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 Small Cap and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Special and Mid Cap Strategic, you can compare the effects of market volatilities on Small Cap and Mid 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 Small Cap with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Mid Cap.
Diversification Opportunities for Small Cap and Mid Cap
Very weak diversification
The 3 months correlation between Small and Mid is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Special and Mid Cap Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Strategic 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 Special are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Strategic has no effect on the direction of Small Cap i.e., Small Cap and Mid Cap go up and down completely randomly.
Pair Corralation between Small Cap and Mid Cap
Assuming the 90 days horizon Small Cap Special is expected to under-perform the Mid Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Special is 1.22 times less risky than Mid Cap. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Mid Cap Strategic is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 2,140 in Mid Cap Strategic on November 28, 2024 and sell it today you would lose (68.00) from holding Mid Cap Strategic or give up 3.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Small Cap Special vs. Mid Cap Strategic
Performance |
| Timeline |
| Small Cap Special |
| Mid Cap Strategic |
Small Cap and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Mid Cap
The main advantage of trading using opposite Small Cap and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Mid 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 Mid Cap will offset losses from the drop in Mid Cap's long position.| Small Cap vs. Vanguard Reit Index | Small Cap vs. Neuberger Berman Real | Small Cap vs. Global Real Estate | Small Cap vs. Fidelity Real Estate |
| Mid Cap vs. Jpmorgan Emerging Markets | Mid Cap vs. Rbc Emerging Markets | Mid Cap vs. Angel Oak Multi Strategy | Mid Cap vs. Embark Commodity Strategy |
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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