Correlation Between SPACE and Small Cap

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

By analyzing existing cross correlation between SPACE and Small Cap Growth, you can compare the effects of market volatilities on SPACE and Small Cap 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 SPACE with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPACE and Small Cap.

Diversification Opportunities for SPACE and Small Cap

0.49

Correlation Coefficient

SPACE  Small Cap

Very weak diversification

The 3 months correlation between SPACE and Small is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and SPACE 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 SPACE are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of SPACE i.e., SPACE and Small Cap go up and down completely randomly.

Pair Corralation between SPACE and Small Cap

Assuming the 90 days horizon SPACE is expected to under-perform the Small Cap. In addition to that, SPACE is 4.17 times more volatile than Small Cap Growth. It trades about -0.02 of its total potential returns per unit of risk. Small Cap Growth is currently generating about 0.07 per unit of volatility. If you would invest  1,379  in Small Cap Growth on October 9, 2024 and sell it today you would earn a total of  328.00  from holding Small Cap Growth or generate 23.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	69.64%
Values	Daily Returns

SPACE  vs.  Small Cap Growth

SPACE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPACE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SPACE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPACE and Small Cap

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

The idea behind SPACE and Small Cap 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.