Correlation Between Wilshire 5000 and Small Company
Can any of the company-specific risk be diversified away by investing in both Wilshire 5000 and Small Company 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 Wilshire 5000 and Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wilshire 5000 Index and Small Pany Growth, you can compare the effects of market volatilities on Wilshire 5000 and Small Company 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 Wilshire 5000 with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wilshire 5000 and Small Company.
Diversification Opportunities for Wilshire 5000 and Small Company
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Wilshire and Small is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Wilshire 5000 Index and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Wilshire 5000 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 Wilshire 5000 Index are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Wilshire 5000 i.e., Wilshire 5000 and Small Company go up and down completely randomly.
Pair Corralation between Wilshire 5000 and Small Company
Assuming the 90 days horizon Wilshire 5000 is expected to generate 1.64 times less return on investment than Small Company. But when comparing it to its historical volatility, Wilshire 5000 Index is 1.17 times less risky than Small Company. It trades about 0.1 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,097 in Small Pany Growth on October 26, 2024 and sell it today you would earn a total of 56.00 from holding Small Pany Growth or generate 2.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wilshire 5000 Index vs. Small Pany Growth
Performance |
| Timeline |
| Wilshire 5000 Index |
| Small Pany Growth |
Wilshire 5000 and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wilshire 5000 and Small Company
The main advantage of trading using opposite Wilshire 5000 and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wilshire 5000 position performs unexpectedly, Small Company 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 Company will offset losses from the drop in Small Company's long position.| Wilshire 5000 vs. Wilshire 5000 Index | Wilshire 5000 vs. Schwab Total Stock | Wilshire 5000 vs. Vanguard Russell 3000 | Wilshire 5000 vs. iShares Russell 3000 |
| Small Company vs. Small Pany Value | Small Company vs. Small Pany Growth | Small Company vs. Large Pany Growth | Small Company vs. Large Pany Value |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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