Correlation Between Small Cap and Alps/kotak India

Can any of the company-specific risk be diversified away by investing in both Small Cap and Alps/kotak India 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 Alps/kotak India into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Equity and Alpskotak India Growth, you can compare the effects of market volatilities on Small Cap and Alps/kotak India 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 Alps/kotak India. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Alps/kotak India.

Diversification Opportunities for Small Cap and Alps/kotak India

0.51

Correlation Coefficient

Small Cap  Alps/kotak India

Very weak diversification

The 3 months correlation between SMALL and Alps/kotak is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Alpskotak India Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpskotak India Growth 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 Equity are associated (or correlated) with Alps/kotak India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpskotak India Growth has no effect on the direction of Small Cap i.e., Small Cap and Alps/kotak India go up and down completely randomly.

Pair Corralation between Small Cap and Alps/kotak India

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Alps/kotak India. In addition to that, Small Cap is 1.18 times more volatile than Alpskotak India Growth. It trades about -0.11 of its total potential returns per unit of risk. Alpskotak India Growth is currently generating about -0.1 per unit of volatility. If you would invest  1,766  in Alpskotak India Growth on December 22, 2024 and sell it today you would lose (98.00) from holding Alpskotak India Growth or give up 5.55% of portfolio value over 90 days.

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

Small Cap Equity  vs.  Alpskotak India Growth

Small Cap Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Alpskotak India Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alpskotak India Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Alps/kotak India 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 Alps/kotak India

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

The idea behind Small Cap Equity and Alpskotak India Growth 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.