Correlation Between Qs Large and Small Cap

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

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

Diversification Opportunities for Qs Large and Small Cap

0.91

Correlation Coefficient

Qs Large  Small Cap

Almost no diversification

The 3 months correlation between LMUSX and Small is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Qs Large Cap and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Qs Large 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 Qs Large Cap 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 Value has no effect on the direction of Qs Large i.e., Qs Large and Small Cap go up and down completely randomly.

Pair Corralation between Qs Large and Small Cap

Assuming the 90 days horizon Qs Large Cap is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Qs Large Cap is 1.07 times less risky than Small Cap. The mutual fund trades about -0.25 of its potential returns per unit of risk. The Small Cap Value is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  1,069  in Small Cap Value on December 4, 2024 and sell it today you would lose (43.00) from holding Small Cap Value or give up 4.02% of portfolio value over 90 days.

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

Qs Large Cap  vs.  Small Cap Value

Qs Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Qs Large Cap 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.

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Qs Large and Small Cap

The main advantage of trading using opposite Qs Large and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qs Large 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 Qs Large Cap and Small Cap Value 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.