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 Value 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

-0.38

Correlation Coefficient

Small Cap  Precious Metals

Very good diversification

The 3 months correlation between Small and Precious is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value 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 Value 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 Value is expected to under-perform the Precious Metals. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Value is 1.39 times less risky than Precious Metals. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Precious Metals And is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,881  in Precious Metals And on December 21, 2024 and sell it today you would earn a total of  618.00  from holding Precious Metals And or generate 32.85% 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.  Precious Metals And

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.

Precious Metals And

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals And are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Precious Metals showed solid returns over the last few months and may actually be approaching a breakup point.

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 Value 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.