Correlation Between Small Cap and Turner Emerging

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

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

Diversification Opportunities for Small Cap and Turner Emerging

0.98

Correlation Coefficient

Small Cap  Turner Emerging

Almost no diversification

The 3 months correlation between Small and Turner is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Turner Emerging Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Turner Emerging Growth 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 Value are associated (or correlated) with Turner Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Turner Emerging Growth has no effect on the direction of Small Cap i.e., Small Cap and Turner Emerging go up and down completely randomly.

Pair Corralation between Small Cap and Turner Emerging

Assuming the 90 days horizon Small Cap Value is expected to generate 0.85 times more return on investment than Turner Emerging. However, Small Cap Value is 1.18 times less risky than Turner Emerging. It trades about -0.06 of its potential returns per unit of risk. Turner Emerging Growth is currently generating about -0.09 per unit of risk. If you would invest  1,050  in Small Cap Value on December 28, 2024 and sell it today you would lose (45.00) from holding Small Cap Value or give up 4.29% of portfolio value over 90 days.

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

Small Cap Value  vs.  Turner Emerging Growth

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. 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.

Turner Emerging Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Turner Emerging Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Small Cap and Turner Emerging

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

The idea behind Small Cap Value and Turner Emerging 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.