Correlation Between Small Cap and Newtek Business

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

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

Diversification Opportunities for Small Cap and Newtek Business

0.82

Correlation Coefficient

Small Cap  Newtek Business

Very poor diversification

The 3 months correlation between Small and Newtek is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services 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 Premium are associated (or correlated) with Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of Small Cap i.e., Small Cap and Newtek Business go up and down completely randomly.

Pair Corralation between Small Cap and Newtek Business

If you would invest  2,418  in Small Cap Premium on September 17, 2024 and sell it today you would earn a total of  31.00  from holding Small Cap Premium or generate 1.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	0.0%
Values	Daily Returns

Small Cap Premium  vs.  Newtek Business Services

Small Cap Premium

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Newtek Business Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Newtek Business Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Newtek Business is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Small Cap and Newtek Business

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

The idea behind Small Cap Premium and Newtek Business Services 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.