Correlation Between Small Cap and SEI Investments

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

Diversification Opportunities for Small Cap and SEI Investments

0.82

Correlation Coefficient

Small Cap  SEI Investments

Very poor diversification

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

Pair Corralation between Small Cap and SEI Investments

Considering the 90-day investment horizon Small Cap is expected to generate 9.31 times less return on investment than SEI Investments. But when comparing it to its historical volatility, Small Cap Premium is 2.39 times less risky than SEI Investments. It trades about 0.07 of its potential returns per unit of risk. SEI Investments is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  6,727  in SEI Investments on September 2, 2024 and sell it today you would earn a total of  1,536  from holding SEI Investments or generate 22.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Small Cap Premium  vs.  SEI Investments

Small Cap Premium

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 5 (%) 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.

SEI Investments

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SEI Investments are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal forward indicators, SEI Investments exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and SEI Investments

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

The idea behind Small Cap Premium and SEI Investments 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.