Correlation Between Short Term and Small Cap
Can any of the company-specific risk be diversified away by investing in both Short Term and Small Cap 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 Short Term and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and Small Cap Growth, you can compare the effects of market volatilities on Short Term and Small Cap 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 Short Term with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and Small Cap.
Diversification Opportunities for Short Term and Small Cap
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Short and Small is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Short Term 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 Short Term Government Fund are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Short Term i.e., Short Term and Small Cap go up and down completely randomly.
Pair Corralation between Short Term and Small Cap
Assuming the 90 days horizon Short Term Government Fund is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Term Government Fund is 9.82 times less risky than Small Cap. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Small Cap Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,560 in Small Cap Growth on September 17, 2024 and sell it today you would earn a total of 96.00 from holding Small Cap Growth or generate 6.15% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Short Term Government Fund vs. Small Cap Growth
Performance |
Timeline |
Short Term Government |
Small Cap Growth |
Short Term and Small Cap Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Short Term and Small Cap
The main advantage of trading using opposite Short Term and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.Short Term vs. Mid Cap Value | Short Term vs. Equity Growth Fund | Short Term vs. Income Growth Fund | Short Term vs. Diversified Bond Fund |
Small Cap vs. Qs Large Cap | Small Cap vs. American Mutual Fund | Small Cap vs. Large Cap Growth Profund | Small Cap vs. Qs Large Cap |
Check out your portfolio center.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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