Correlation Between Small Company and Wilshire 5000
Can any of the company-specific risk be diversified away by investing in both Small Company and Wilshire 5000 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 Wilshire 5000 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 Wilshire 5000 Index, you can compare the effects of market volatilities on Small Company and Wilshire 5000 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 Wilshire 5000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Wilshire 5000.
Diversification Opportunities for Small Company and Wilshire 5000
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Wilshire is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Wilshire 5000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire 5000 Index 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 Wilshire 5000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire 5000 Index has no effect on the direction of Small Company i.e., Small Company and Wilshire 5000 go up and down completely randomly.
Pair Corralation between Small Company and Wilshire 5000
Assuming the 90 days horizon Small Company is expected to generate 2.26 times less return on investment than Wilshire 5000. In addition to that, Small Company is 1.58 times more volatile than Wilshire 5000 Index. It trades about 0.03 of its total potential returns per unit of risk. Wilshire 5000 Index is currently generating about 0.11 per unit of volatility. If you would invest 2,904 in Wilshire 5000 Index on August 25, 2024 and sell it today you would earn a total of 527.00 from holding Wilshire 5000 Index or generate 18.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Growth vs. Wilshire 5000 Index
Performance |
| Timeline |
| Small Pany Growth |
| Wilshire 5000 Index |
Small Company and Wilshire 5000 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Wilshire 5000
The main advantage of trading using opposite Small Company and Wilshire 5000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Wilshire 5000 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 Wilshire 5000 will offset losses from the drop in Wilshire 5000's long position.| Small Company vs. Small Pany Value | Small Company vs. Small Pany Growth | Small Company vs. Large Pany Growth | Small Company vs. Large Pany Value |
| Wilshire 5000 vs. Wilshire 5000 Index | Wilshire 5000 vs. Schwab Total Stock | Wilshire 5000 vs. Vanguard Russell 3000 | Wilshire 5000 vs. iShares Russell 3000 |
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 Stocks Directory module to find actively traded stocks across global markets.
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