Correlation Between Western Acquisition and Small Cap
Can any of the company-specific risk be diversified away by investing in both Western Acquisition 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 Western Acquisition and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Acquisition Ventures and Small Cap Premium, you can compare the effects of market volatilities on Western Acquisition 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 Western Acquisition with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Acquisition and Small Cap.
Diversification Opportunities for Western Acquisition and Small Cap
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Small is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Western Acquisition Ventures and Small Cap Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Premium and Western Acquisition 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 Western Acquisition Ventures 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 Premium has no effect on the direction of Western Acquisition i.e., Western Acquisition and Small Cap go up and down completely randomly.
Pair Corralation between Western Acquisition and Small Cap
Given the investment horizon of 90 days Western Acquisition Ventures is expected to under-perform the Small Cap. In addition to that, Western Acquisition is 3.47 times more volatile than Small Cap Premium. It trades about -0.05 of its total potential returns per unit of risk. Small Cap Premium is currently generating about -0.03 per unit of volatility. If you would invest 2,467 in Small Cap Premium on September 2, 2024 and sell it today you would lose (7.00) from holding Small Cap Premium or give up 0.28% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Acquisition Ventures vs. Small Cap Premium
Performance |
| Timeline |
| Western Acquisition |
| Small Cap Premium |
Western Acquisition and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Acquisition and Small Cap
The main advantage of trading using opposite Western Acquisition and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Acquisition 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.The idea behind Western Acquisition Ventures and Small Cap Premium pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Small Cap vs. RiverNorth Specialty Finance | Small Cap vs. Royce Micro Cap | Small Cap vs. First Trust Enhanced | Small Cap vs. Voya Global Advantage |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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