Correlation Between Icon Equity and Small Cap

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

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

Diversification Opportunities for Icon Equity and Small Cap

-0.39

Correlation Coefficient

Icon Equity  Small Cap

Very good diversification

The 3 months correlation between Icon and Small is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Icon Equity Income and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Icon Equity 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 Icon Equity Income 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 Equity has no effect on the direction of Icon Equity i.e., Icon Equity and Small Cap go up and down completely randomly.

Pair Corralation between Icon Equity and Small Cap

Assuming the 90 days horizon Icon Equity Income is expected to generate 0.66 times more return on investment than Small Cap. However, Icon Equity Income is 1.51 times less risky than Small Cap. It trades about 0.09 of its potential returns per unit of risk. Small Cap Equity is currently generating about -0.09 per unit of risk. If you would invest  1,596  in Icon Equity Income on December 28, 2024 and sell it today you would earn a total of  61.00  from holding Icon Equity Income or generate 3.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Icon Equity Income  vs.  Small Cap Equity

Icon Equity Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Icon Equity Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Icon Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Icon Equity and Small Cap

The main advantage of trading using opposite Icon Equity and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Icon Equity 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 Icon Equity Income and Small Cap Equity 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.