Correlation Between Small Cap and Clearbridge Small

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

Diversification Opportunities for Small Cap and Clearbridge Small

0.99

Correlation Coefficient

Small Cap  Clearbridge Small

No risk reduction

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

Pair Corralation between Small Cap and Clearbridge Small

Assuming the 90 days horizon Small Cap Equity is expected to generate 1.2 times more return on investment than Clearbridge Small. However, Small Cap is 1.2 times more volatile than Clearbridge Small Cap. It trades about 0.28 of its potential returns per unit of risk. Clearbridge Small Cap is currently generating about 0.29 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Small Cap Equity  vs.  Clearbridge Small Cap

Small Cap Equity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 14 (%) 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.

Clearbridge Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Clearbridge Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Clearbridge Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Clearbridge Small

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

The idea behind Small Cap Equity and Clearbridge 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.