Correlation Between Small Company and Large Pany
Can any of the company-specific risk be diversified away by investing in both Small Company and Large Pany 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 Large Pany 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 Large Pany Growth, you can compare the effects of market volatilities on Small Company and Large Pany 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 Large Pany. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Large Pany.
Diversification Opportunities for Small Company and Large Pany
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Large is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Large Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany 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 Large Pany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Pany Growth has no effect on the direction of Small Company i.e., Small Company and Large Pany go up and down completely randomly.
Pair Corralation between Small Company and Large Pany
Assuming the 90 days horizon Small Pany Growth is expected to generate 1.36 times more return on investment than Large Pany. However, Small Company is 1.36 times more volatile than Large Pany Growth. It trades about 0.22 of its potential returns per unit of risk. Large Pany Growth is currently generating about 0.15 per unit of risk. If you would invest 2,042 in Small Pany Growth on August 28, 2024 and sell it today you would earn a total of 156.00 from holding Small Pany Growth or generate 7.64% 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. Large Pany Growth
Performance |
| Timeline |
| Small Pany Growth |
| Large Pany Growth |
Small Company and Large Pany Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Large Pany
The main advantage of trading using opposite Small Company and Large Pany positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Large Pany 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 Large Pany will offset losses from the drop in Large Pany's long position.| Small Company vs. Small Pany Value | Small Company vs. Wilshire Large | Small Company vs. Wilshire 5000 Index |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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