Correlation Between Small Company and Emerging Growth
Can any of the company-specific risk be diversified away by investing in both Small Company and Emerging Growth 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 Company and Emerging Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Pany Growth and Emerging Growth Fund, you can compare the effects of market volatilities on Small Company and Emerging Growth 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 Company with a short position of Emerging Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Emerging Growth.
Diversification Opportunities for Small Company and Emerging Growth
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SMALL and Emerging is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Emerging Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Growth and Small 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 Small Pany Growth are associated (or correlated) with Emerging Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Growth has no effect on the direction of Small Company i.e., Small Company and Emerging Growth go up and down completely randomly.
Pair Corralation between Small Company and Emerging Growth
Assuming the 90 days horizon Small Company is expected to generate 1.21 times less return on investment than Emerging Growth. But when comparing it to its historical volatility, Small Pany Growth is 1.2 times less risky than Emerging Growth. It trades about 0.3 of its potential returns per unit of risk. Emerging Growth Fund is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 1,004 in Emerging Growth Fund on October 24, 2024 and sell it today you would earn a total of 60.00 from holding Emerging Growth Fund or generate 5.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Growth vs. Emerging Growth Fund
Performance |
| Timeline |
| Small Pany Growth |
| Emerging Growth |
Small Company and Emerging Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Emerging Growth
The main advantage of trading using opposite Small Company and Emerging Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Emerging Growth 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 Emerging Growth will offset losses from the drop in Emerging Growth's long position.| Small Company vs. Wells Fargo Special | Small Company vs. Champlain Small | Small Company vs. Wells Fargo Emerging | Small Company vs. The Hartford Midcap |
| Emerging Growth vs. Wells Fargo Advantage | Emerging Growth vs. Wells Fargo Advantage | Emerging Growth vs. Wells Fargo Advantage | Emerging Growth vs. Wells Fargo Ultra |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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