Correlation Between Sp Smallcap and Sdit Short

Can any of the company-specific risk be diversified away by investing in both Sp Smallcap and Sdit Short 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 Sp Smallcap and Sdit Short into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sp Smallcap 600 and Sdit Short Duration, you can compare the effects of market volatilities on Sp Smallcap and Sdit Short 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 Sp Smallcap with a short position of Sdit Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Smallcap and Sdit Short.

Diversification Opportunities for Sp Smallcap and Sdit Short

0.04

Correlation Coefficient

Sp Smallcap  Sdit Short

Significant diversification

The 3 months correlation between RYSVX and Sdit is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Sdit Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sdit Short Duration and Sp Smallcap 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 Sp Smallcap 600 are associated (or correlated) with Sdit Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sdit Short Duration has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Sdit Short go up and down completely randomly.

Pair Corralation between Sp Smallcap and Sdit Short

Assuming the 90 days horizon Sp Smallcap 600 is expected to generate 10.77 times more return on investment than Sdit Short. However, Sp Smallcap is 10.77 times more volatile than Sdit Short Duration. It trades about 0.11 of its potential returns per unit of risk. Sdit Short Duration is currently generating about -0.02 per unit of risk. If you would invest  19,923  in Sp Smallcap 600 on September 16, 2024 and sell it today you would earn a total of  1,872  from holding Sp Smallcap 600 or generate 9.4% return on investment over 90 days.

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

Sp Smallcap 600  vs.  Sdit Short Duration

Sp Smallcap 600

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Smallcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sdit Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sdit Short Duration has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Sdit Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp Smallcap and Sdit Short

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

The idea behind Sp Smallcap 600 and Sdit Short Duration 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.