Correlation Between Small Cap and Nomura Real

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

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

Diversification Opportunities for Small Cap and Nomura Real

-0.16

Correlation Coefficient

Small Cap  Nomura Real

Good diversification

The 3 months correlation between Small and Nomura is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Nomura Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomura Real Estate 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 Stock are associated (or correlated) with Nomura Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomura Real Estate has no effect on the direction of Small Cap i.e., Small Cap and Nomura Real go up and down completely randomly.

Pair Corralation between Small Cap and Nomura Real

Assuming the 90 days horizon Small Cap is expected to generate 4.8 times less return on investment than Nomura Real. But when comparing it to its historical volatility, Small Cap Stock is 3.26 times less risky than Nomura Real. It trades about 0.03 of its potential returns per unit of risk. Nomura Real Estate is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  55,965  in Nomura Real Estate on September 29, 2024 and sell it today you would earn a total of  44,870  from holding Nomura Real Estate or generate 80.18% return on investment over 90 days.

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

Small Cap Stock  vs.  Nomura Real Estate

Small Cap Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest fragile performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Nomura Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nomura Real Estate has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable basic indicators, Nomura Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Small Cap and Nomura Real

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

The idea behind Small Cap Stock and Nomura Real Estate 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.