Correlation Between Us Government and Sp Smallcap

Can any of the company-specific risk be diversified away by investing in both Us Government and Sp Smallcap 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 Us Government and Sp Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Us Government Securities and Sp Smallcap Index, you can compare the effects of market volatilities on Us Government and Sp Smallcap 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 Us Government with a short position of Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Sp Smallcap.

Diversification Opportunities for Us Government and Sp Smallcap

-0.61

Correlation Coefficient

Us Government  Sp Smallcap

Excellent diversification

The 3 months correlation between CAUKX and SMCIX is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Sp Smallcap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap Index and Us Government 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 Us Government Securities are associated (or correlated) with Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap Index has no effect on the direction of Us Government i.e., Us Government and Sp Smallcap go up and down completely randomly.

Pair Corralation between Us Government and Sp Smallcap

Assuming the 90 days horizon Us Government is expected to generate 6.73 times less return on investment than Sp Smallcap. But when comparing it to its historical volatility, Us Government Securities is 3.77 times less risky than Sp Smallcap. It trades about 0.02 of its potential returns per unit of risk. Sp Smallcap Index is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,018  in Sp Smallcap Index on September 4, 2024 and sell it today you would earn a total of  368.00  from holding Sp Smallcap Index or generate 18.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Us Government Securities  vs.  Sp Smallcap Index

Us Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sp Smallcap Index

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Sp Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Sp Smallcap

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

The idea behind Us Government Securities and Sp Smallcap Index 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.