Correlation Between Small Cap and Siit Equity

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

Diversification Opportunities for Small Cap and Siit Equity

0.5

Correlation Coefficient

Small Cap  Siit Equity

Very weak diversification

The 3 months correlation between Small and Siit is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Siit Equity Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siit Equity Factor 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 Siit Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siit Equity Factor has no effect on the direction of Small Cap i.e., Small Cap and Siit Equity go up and down completely randomly.

Pair Corralation between Small Cap and Siit Equity

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Siit Equity. In addition to that, Small Cap is 1.2 times more volatile than Siit Equity Factor. It trades about -0.12 of its total potential returns per unit of risk. Siit Equity Factor is currently generating about -0.03 per unit of volatility. If you would invest  1,442  in Siit Equity Factor on December 19, 2024 and sell it today you would lose (28.00) from holding Siit Equity Factor or give up 1.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Small Cap Equity  vs.  Siit Equity Factor

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.

Siit Equity Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Siit Equity Factor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Siit Equity 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 Siit Equity

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

The idea behind Small Cap Equity and Siit Equity Factor 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.