Correlation Between Small Cap and Gold Portfolio

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

Diversification Opportunities for Small Cap and Gold Portfolio

-0.35

Correlation Coefficient

Small Cap  Gold Portfolio

Very good diversification

The 3 months correlation between Small and Gold is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Gold Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Portfolio Fidelity 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 Gold Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Portfolio Fidelity has no effect on the direction of Small Cap i.e., Small Cap and Gold Portfolio go up and down completely randomly.

Pair Corralation between Small Cap and Gold Portfolio

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Gold Portfolio. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Value is 1.49 times less risky than Gold Portfolio. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Gold Portfolio Fidelity is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  2,452  in Gold Portfolio Fidelity on December 19, 2024 and sell it today you would earn a total of  795.00  from holding Gold Portfolio Fidelity or generate 32.42% return on investment over 90 days.

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

Small Cap Value  vs.  Gold Portfolio Fidelity

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.

Gold Portfolio Fidelity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Portfolio Fidelity are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Gold Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Gold Portfolio

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

The idea behind Small Cap Value and Gold Portfolio Fidelity 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.