Correlation Between Small Cap and Retirement Living

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

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

Diversification Opportunities for Small Cap and Retirement Living

0.45

Correlation Coefficient

Small Cap  Retirement Living

Very weak diversification

The 3 months correlation between SMALL and Retirement is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Retirement Living Through in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retirement Living Through 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 Growth are associated (or correlated) with Retirement Living. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retirement Living Through has no effect on the direction of Small Cap i.e., Small Cap and Retirement Living go up and down completely randomly.

Pair Corralation between Small Cap and Retirement Living

Assuming the 90 days horizon Small Cap Growth is expected to under-perform the Retirement Living. In addition to that, Small Cap is 1.88 times more volatile than Retirement Living Through. It trades about -0.16 of its total potential returns per unit of risk. Retirement Living Through is currently generating about 0.0 per unit of volatility. If you would invest  1,027  in Retirement Living Through on December 23, 2024 and sell it today you would lose (2.00) from holding Retirement Living Through or give up 0.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Small Cap Growth  vs.  Retirement Living Through

Small Cap Growth

Risk-Adjusted Performance

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Retirement Living Through

Risk-Adjusted Performance

Very Weak

Over the last 90 days Retirement Living Through has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Retirement Living 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 Retirement Living

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

The idea behind Small Cap Growth and Retirement Living Through 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 Transaction History module to view history of all your transactions and understand their impact on performance.