Correlation Between Small Cap and Lind Capital

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

Diversification Opportunities for Small Cap and Lind Capital

0.4

Correlation Coefficient

Small Cap  Lind Capital

Very weak diversification

The 3 months correlation between Small and Lind is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Lind Capital Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lind Capital Partners 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 Lind Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lind Capital Partners has no effect on the direction of Small Cap i.e., Small Cap and Lind Capital go up and down completely randomly.

Pair Corralation between Small Cap and Lind Capital

Assuming the 90 days horizon Small Cap Equity is expected to generate 5.4 times more return on investment than Lind Capital. However, Small Cap is 5.4 times more volatile than Lind Capital Partners. It trades about 0.28 of its potential returns per unit of risk. Lind Capital Partners is currently generating about 0.14 per unit of risk. If you would invest  1,852  in Small Cap Equity on September 5, 2024 and sell it today you would earn a total of  183.00  from holding Small Cap Equity or generate 9.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Small Cap Equity  vs.  Lind Capital Partners

Small Cap Equity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Lind Capital Partners

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lind Capital Partners are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Lind Capital 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 Lind Capital

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

The idea behind Small Cap Equity and Lind Capital Partners 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.