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 poor diversification
The 3 months correlation between SMALL and Mid is 0.89. 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 generate 1.43 times more return on investment than Mid Cap. However, Small Cap is 1.43 times more volatile than Mid Cap Strategic. It trades about 0.23 of its potential returns per unit of risk. Mid Cap Strategic is currently generating about 0.31 per unit of risk. If you would invest 1,252 in Small Cap Special on August 30, 2024 and sell it today you would earn a total of 99.00 from holding Small Cap Special or generate 7.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| 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. Mfs Technology Fund | Small Cap vs. Towpath Technology | Small Cap vs. Technology Ultrasector Profund | Small Cap vs. Janus Global Technology |
| Mid Cap vs. Calvert Short Duration | Mid Cap vs. Jhancock Short Duration | Mid Cap vs. Franklin Federal Limited Term | Mid Cap vs. Rbc Short Duration |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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