Correlation Between Mid Cap and Small Cap

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Mid Cap 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 Mid Cap and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Value and Small Cap Growth, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Small Cap.

Diversification Opportunities for Mid Cap and Small Cap

0.54
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Mid and Small is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value 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 Mid 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 Mid Cap Value 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 Mid Cap i.e., Mid Cap and Small Cap go up and down completely randomly.

Pair Corralation between Mid Cap and Small Cap

Assuming the 90 days horizon Mid Cap Value is expected to under-perform the Small Cap. In addition to that, Mid Cap is 1.09 times more volatile than Small Cap Growth. It trades about -0.16 of its total potential returns per unit of risk. Small Cap Growth is currently generating about 0.04 per unit of volatility. If you would invest  2,123  in Small Cap Growth on September 23, 2024 and sell it today you would earn a total of  40.00  from holding Small Cap Growth or generate 1.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Mid Cap Value  vs.  Small Cap Growth

 Performance 
       Timeline  
Mid Cap Value 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Mid Cap Value 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 Growth 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap and Small Cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mid Cap and Small Cap

The main advantage of trading using opposite Mid Cap and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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 Mid Cap Value and Small Cap Growth 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.
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

Other Complementary Tools

Bond Analysis
Evaluate and analyze corporate bonds as a potential investment for your portfolios.
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Theme Ratings
Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance
Top Crypto Exchanges
Search and analyze digital assets across top global cryptocurrency exchanges
Commodity Directory
Find actively traded commodities issued by global exchanges