Correlation Between Small Cap and Jennison Natural
Can any of the company-specific risk be diversified away by investing in both Small Cap and Jennison Natural 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 Jennison Natural 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 Jennison Natural Resources, you can compare the effects of market volatilities on Small Cap and Jennison Natural 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 Jennison Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Jennison Natural.
Diversification Opportunities for Small Cap and Jennison Natural
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Jennison is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Jennison Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jennison Natural Res 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 Jennison Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jennison Natural Res has no effect on the direction of Small Cap i.e., Small Cap and Jennison Natural go up and down completely randomly.
Pair Corralation between Small Cap and Jennison Natural
Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Jennison Natural. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Equity is 1.1 times less risky than Jennison Natural. The mutual fund trades about -0.21 of its potential returns per unit of risk. The Jennison Natural Resources is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 4,203 in Jennison Natural Resources on December 2, 2024 and sell it today you would lose (318.00) from holding Jennison Natural Resources or give up 7.57% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Small Cap Equity vs. Jennison Natural Resources
Performance |
Timeline |
Small Cap Equity |
Jennison Natural Res |
Small Cap and Jennison Natural Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Jennison Natural
The main advantage of trading using opposite Small Cap and Jennison Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Jennison Natural 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 Jennison Natural will offset losses from the drop in Jennison Natural's long position.Small Cap vs. Harbor Diversified International | Small Cap vs. Prudential Core Conservative | Small Cap vs. Aqr Diversified Arbitrage | Small Cap vs. Jhancock Diversified Macro |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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