Correlation Between Small Cap and Precious Metals

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

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

Diversification Opportunities for Small Cap and Precious Metals

-0.31

Correlation Coefficient

Small Cap  Precious Metals

Very good diversification

The 3 months correlation between Small and Precious is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Precious Metals And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals And 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 Growth are associated (or correlated) with Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals And has no effect on the direction of Small Cap i.e., Small Cap and Precious Metals go up and down completely randomly.

Pair Corralation between Small Cap and Precious Metals

Assuming the 90 days horizon Small Cap Growth is expected to generate 0.67 times more return on investment than Precious Metals. However, Small Cap Growth is 1.48 times less risky than Precious Metals. It trades about 0.06 of its potential returns per unit of risk. Precious Metals And is currently generating about 0.04 per unit of risk. If you would invest  1,963  in Small Cap Growth on September 12, 2024 and sell it today you would earn a total of  475.00  from holding Small Cap Growth or generate 24.2% return on investment over 90 days.

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

Small Cap Growth  vs.  Precious Metals And

Small Cap Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Precious Metals And

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Precious Metals And has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Precious Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Precious Metals

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

The idea behind Small Cap Growth and Precious Metals And 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 Transaction History module to view history of all your transactions and understand their impact on performance.