Correlation Between Small Cap and Goldman Sachs

Can any of the company-specific risk be diversified away by investing in both Small Cap and Goldman Sachs 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 Cap and Goldman Sachs into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Growth and Goldman Sachs Real, you can compare the effects of market volatilities on Small Cap and Goldman Sachs 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 Cap with a short position of Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Goldman Sachs.

Diversification Opportunities for Small Cap and Goldman Sachs

0.34

Correlation Coefficient

Small Cap  Goldman Sachs

Weak diversification

The 3 months correlation between Small and Goldman is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Goldman Sachs Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Real and Small Cap 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 Cap Growth are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Real has no effect on the direction of Small Cap i.e., Small Cap and Goldman Sachs go up and down completely randomly.

Pair Corralation between Small Cap and Goldman Sachs

Assuming the 90 days horizon Small Cap Growth is expected to generate 1.2 times more return on investment than Goldman Sachs. However, Small Cap is 1.2 times more volatile than Goldman Sachs Real. It trades about 0.17 of its potential returns per unit of risk. Goldman Sachs Real is currently generating about 0.12 per unit of risk. If you would invest  1,861  in Small Cap Growth on September 4, 2024 and sell it today you would earn a total of  155.00  from holding Small Cap Growth or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Small Cap Growth  vs.  Goldman Sachs Real

Small Cap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Goldman Sachs Real

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Real are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Goldman Sachs is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Goldman Sachs

The main advantage of trading using opposite Small Cap and Goldman Sachs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Goldman Sachs 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 Goldman Sachs will offset losses from the drop in Goldman Sachs' long position.

The idea behind Small Cap Growth and Goldman Sachs Real pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.