Correlation Between Winmark and Small Cap
Can any of the company-specific risk be diversified away by investing in both Winmark 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 Winmark and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Winmark and Small Cap Core, you can compare the effects of market volatilities on Winmark 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 Winmark with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Winmark and Small Cap.
Diversification Opportunities for Winmark and Small Cap
Very poor diversification
The 3 months correlation between Winmark and Small is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Winmark and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Winmark 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 Winmark 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 Core has no effect on the direction of Winmark i.e., Winmark and Small Cap go up and down completely randomly.
Pair Corralation between Winmark and Small Cap
Given the investment horizon of 90 days Winmark is expected to generate 1.47 times more return on investment than Small Cap. However, Winmark is 1.47 times more volatile than Small Cap Core. It trades about 0.07 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.05 per unit of risk. If you would invest 23,250 in Winmark on August 23, 2024 and sell it today you would earn a total of 16,712 from holding Winmark or generate 71.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Winmark vs. Small Cap Core
Performance |
| Timeline |
| Winmark |
| Small Cap Core |
Winmark and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Winmark and Small Cap
The main advantage of trading using opposite Winmark and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Winmark 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.| Winmark vs. Mesa Laboratories | Winmark vs. Utah Medical Products | Winmark vs. Weyco Group | Winmark vs. Diamond Hill Investment |
| Small Cap vs. Vanguard Mid Cap Index | Small Cap vs. Vanguard Total Bond | Small Cap vs. Vanguard Institutional Index | Small Cap vs. Vanguard Total International |
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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