Correlation Between Multi Index and Small Cap
Can any of the company-specific risk be diversified away by investing in both Multi Index and Small Cap 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 Multi Index and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Multi Index 2025 Lifetime and Small Cap Value, you can compare the effects of market volatilities on Multi Index and Small Cap 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 Multi Index with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multi Index and Small Cap.
Diversification Opportunities for Multi Index and Small Cap
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Multi and Small is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Multi Index 2025 Lifetime and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Multi Index 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 Multi Index 2025 Lifetime are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Multi Index i.e., Multi Index and Small Cap go up and down completely randomly.
Pair Corralation between Multi Index and Small Cap
Assuming the 90 days horizon Multi Index 2025 Lifetime is expected to generate 0.27 times more return on investment than Small Cap. However, Multi Index 2025 Lifetime is 3.74 times less risky than Small Cap. It trades about -0.18 of its potential returns per unit of risk. Small Cap Value is currently generating about -0.44 per unit of risk. If you would invest 1,195 in Multi Index 2025 Lifetime on September 25, 2024 and sell it today you would lose (21.00) from holding Multi Index 2025 Lifetime or give up 1.76% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Multi Index 2025 Lifetime vs. Small Cap Value
Performance |
Timeline |
Multi Index 2025 |
Small Cap Value |
Multi Index and Small Cap Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Multi Index and Small Cap
The main advantage of trading using opposite Multi Index and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multi Index position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.Multi Index vs. Regional Bank Fund | Multi Index vs. Regional Bank Fund | Multi Index vs. Multimanager Lifestyle Moderate | Multi Index vs. Multimanager Lifestyle Balanced |
Small Cap vs. Regional Bank Fund | Small Cap vs. Regional Bank Fund | Small Cap vs. Multimanager Lifestyle Moderate | Small Cap vs. Multimanager Lifestyle Balanced |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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