Correlation Between Small Cap and PLBIIJ

Can any of the company-specific risk be diversified away by investing in both Small Cap and PLBIIJ 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 PLBIIJ 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 PLBIIJ 425 05 MAY 25, you can compare the effects of market volatilities on Small Cap and PLBIIJ 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 PLBIIJ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and PLBIIJ.

Diversification Opportunities for Small Cap and PLBIIJ

0.6

Correlation Coefficient

Small Cap  PLBIIJ

Poor diversification

The 3 months correlation between Small and PLBIIJ is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and PLBIIJ 425 05 MAY 25 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PLBIIJ 425 05 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 PLBIIJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PLBIIJ 425 05 has no effect on the direction of Small Cap i.e., Small Cap and PLBIIJ go up and down completely randomly.

Pair Corralation between Small Cap and PLBIIJ

Considering the 90-day investment horizon Small Cap Premium is expected to generate 0.82 times more return on investment than PLBIIJ. However, Small Cap Premium is 1.22 times less risky than PLBIIJ. It trades about 0.08 of its potential returns per unit of risk. PLBIIJ 425 05 MAY 25 is currently generating about -0.18 per unit of risk. If you would invest  2,399  in Small Cap Premium on September 15, 2024 and sell it today you would earn a total of  61.00  from holding Small Cap Premium or generate 2.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	34.38%
Values	Daily Returns

Small Cap Premium  vs.  PLBIIJ 425 05 MAY 25

Small Cap Premium

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 6 (%) 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.

PLBIIJ 425 05

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PLBIIJ 425 05 MAY 25 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for PLBIIJ 425 05 MAY 25 investors.

Pair Trading with Small Cap and PLBIIJ

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

The idea behind Small Cap Premium and PLBIIJ 425 05 MAY 25 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.