Correlation Between Small Cap and Blackrock Technology

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

By analyzing existing cross correlation between Small Cap Value and Blackrock Technology Opportunities, you can compare the effects of market volatilities on Small Cap and Blackrock Technology 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 Blackrock Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Blackrock Technology.

Diversification Opportunities for Small Cap and Blackrock Technology

0.75

Correlation Coefficient

Small Cap  Blackrock Technology

Poor diversification

The 3 months correlation between SMALL and Blackrock is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Blackrock Technology Opportuni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackrock Technology 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 Value are associated (or correlated) with Blackrock Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackrock Technology has no effect on the direction of Small Cap i.e., Small Cap and Blackrock Technology go up and down completely randomly.

Pair Corralation between Small Cap and Blackrock Technology

Assuming the 90 days horizon Small Cap is expected to generate 2.31 times less return on investment than Blackrock Technology. But when comparing it to its historical volatility, Small Cap Value is 1.08 times less risky than Blackrock Technology. It trades about 0.05 of its potential returns per unit of risk. Blackrock Technology Opportunities is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,064  in Blackrock Technology Opportunities on September 4, 2024 and sell it today you would earn a total of  3,614  from holding Blackrock Technology Opportunities or generate 88.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Small Cap Value  vs.  Blackrock Technology Opportuni

Small Cap Value

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value are ranked lower than 11 (%) 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.

Blackrock Technology

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blackrock Technology Opportunities are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Blackrock Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Blackrock Technology

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

The idea behind Small Cap Value and Blackrock Technology Opportunities 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.