Correlation Between Small Cap and Avantis Us

Can any of the company-specific risk be diversified away by investing in both Small Cap and Avantis Us 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 Avantis Us 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 Avantis Large Cap, you can compare the effects of market volatilities on Small Cap and Avantis Us 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 Avantis Us. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Avantis Us.

Diversification Opportunities for Small Cap and Avantis Us

0.88

Correlation Coefficient

Small Cap  Avantis Us

Very poor diversification

The 3 months correlation between Small and Avantis is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Avantis Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Large Cap 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 Avantis Us. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Large Cap has no effect on the direction of Small Cap i.e., Small Cap and Avantis Us go up and down completely randomly.

Pair Corralation between Small Cap and Avantis Us

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Avantis Us. In addition to that, Small Cap is 1.76 times more volatile than Avantis Large Cap. It trades about -0.05 of its total potential returns per unit of risk. Avantis Large Cap is currently generating about -0.01 per unit of volatility. If you would invest  1,432  in Avantis Large Cap on October 4, 2024 and sell it today you would lose (14.00) from holding Avantis Large Cap or give up 0.98% of portfolio value over 90 days.

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

Small Cap Value  vs.  Avantis Large Cap

Small Cap Value

Risk-Adjusted Performance

0 of 100

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.

Avantis Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avantis Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Avantis Us 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 Avantis Us

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

The idea behind Small Cap Value and Avantis Large Cap 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.