Correlation Between Alger Capital and Small Cap

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

By analyzing existing cross correlation between Alger Capital Appreciation and Small Cap Stock, you can compare the effects of market volatilities on Alger Capital 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 Alger Capital with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alger Capital and Small Cap.

Diversification Opportunities for Alger Capital and Small Cap

0.79

Correlation Coefficient

Alger Capital  Small Cap

Poor diversification

The 3 months correlation between Alger and Small is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alger Capital Appreciation and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Alger Capital 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 Alger Capital Appreciation 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 Stock has no effect on the direction of Alger Capital i.e., Alger Capital and Small Cap go up and down completely randomly.

Pair Corralation between Alger Capital and Small Cap

Assuming the 90 days horizon Alger Capital Appreciation is expected to under-perform the Small Cap. In addition to that, Alger Capital is 1.78 times more volatile than Small Cap Stock. It trades about -0.08 of its total potential returns per unit of risk. Small Cap Stock is currently generating about -0.1 per unit of volatility. If you would invest  1,317  in Small Cap Stock on December 28, 2024 and sell it today you would lose (92.00) from holding Small Cap Stock or give up 6.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Alger Capital Appreciation  vs.  Small Cap Stock

Alger Capital Apprec

Risk-Adjusted Performance

Very Weak

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

Small Cap Stock

Risk-Adjusted Performance

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 weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Alger Capital and Small Cap

The main advantage of trading using opposite Alger Capital and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alger Capital 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.

The idea behind Alger Capital Appreciation and Small Cap Stock 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.