Correlation Between Avantis Small and IShares SP

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

By analyzing existing cross correlation between Avantis Small Cap and iShares SP Small Cap, you can compare the effects of market volatilities on Avantis Small and IShares SP 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 Avantis Small with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avantis Small and IShares SP.

Diversification Opportunities for Avantis Small and IShares SP

0.99

Correlation Coefficient

Avantis Small  IShares SP

No risk reduction

The 3 months correlation between Avantis and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Small Cap and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small and Avantis Small 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 Avantis Small Cap are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of Avantis Small i.e., Avantis Small and IShares SP go up and down completely randomly.

Pair Corralation between Avantis Small and IShares SP

Given the investment horizon of 90 days Avantis Small Cap is expected to generate 1.02 times more return on investment than IShares SP. However, Avantis Small is 1.02 times more volatile than iShares SP Small Cap. It trades about -0.13 of its potential returns per unit of risk. iShares SP Small Cap is currently generating about -0.15 per unit of risk. If you would invest  9,580  in Avantis Small Cap on December 29, 2024 and sell it today you would lose (868.00) from holding Avantis Small Cap or give up 9.06% of portfolio value over 90 days.

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

Avantis Small Cap  vs.  iShares SP Small Cap

Avantis Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avantis Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

iShares SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's forward-looking indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Avantis Small and IShares SP

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

The idea behind Avantis Small Cap and iShares SP Small 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.

Check out your portfolio center.

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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.