Correlation Between Small Cap and Precious Metals

Can any of the company-specific risk be diversified away by investing in both Small Cap and Precious Metals 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 Precious Metals 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 Precious Metals And, you can compare the effects of market volatilities on Small Cap and Precious Metals 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 Precious Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Precious Metals.

Diversification Opportunities for Small Cap and Precious Metals

-0.02

Correlation Coefficient

Small Cap  Precious Metals

Good diversification

The 3 months correlation between Small and Precious is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Precious Metals And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals And 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals And has no effect on the direction of Small Cap i.e., Small Cap and Precious Metals go up and down completely randomly.

Pair Corralation between Small Cap and Precious Metals

Assuming the 90 days horizon Small Cap Value is expected to generate 0.9 times more return on investment than Precious Metals. However, Small Cap Value is 1.11 times less risky than Precious Metals. It trades about -0.08 of its potential returns per unit of risk. Precious Metals And is currently generating about -0.1 per unit of risk. If you would invest  1,851  in Small Cap Value on September 28, 2024 and sell it today you would lose (163.00) from holding Small Cap Value or give up 8.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Small Cap Value  vs.  Precious Metals And

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Precious Metals And

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals And has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Small Cap and Precious Metals

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

The idea behind Small Cap Value and Precious Metals And 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.