Correlation Between Large Company and Small Company
Can any of the company-specific risk be diversified away by investing in both Large Company 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 Large Company and Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Pany Value and Small Pany Value, you can compare the effects of market volatilities on Large Company 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 Large Company with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and Small Company.
Diversification Opportunities for Large Company and Small Company
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Large and Small is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value and Small Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Value and Large Company 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 Large Pany Value 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 Value has no effect on the direction of Large Company i.e., Large Company and Small Company go up and down completely randomly.
Pair Corralation between Large Company and Small Company
Assuming the 90 days horizon Large Company is expected to generate 2.01 times less return on investment than Small Company. But when comparing it to its historical volatility, Large Pany Value is 2.05 times less risky than Small Company. It trades about 0.17 of its potential returns per unit of risk. Small Pany Value is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,749 in Small Pany Value on August 25, 2024 and sell it today you would earn a total of 174.00 from holding Small Pany Value or generate 6.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Pany Value vs. Small Pany Value
Performance |
| Timeline |
| Large Pany Value |
| Small Pany Value |
Large Company and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Company and Small Company
The main advantage of trading using opposite Large Company and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Company 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.| Large Company vs. Boston Partners Small | Large Company vs. Small Cap Value Series | Large Company vs. Ultramid Cap Profund Ultramid Cap | Large Company vs. Fidelity Small Cap |
| Small Company vs. Small Pany Growth | Small Company vs. Large Pany Value | Small Company vs. Wilshire Large | Small Company vs. Small 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
Other Complementary Tools
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account |