Correlation Between Small Cap and Transam Short-term

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

By analyzing existing cross correlation between Small Cap Value Series and Transam Short Term Bond, you can compare the effects of market volatilities on Small Cap and Transam Short-term 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 Transam Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Transam Short-term.

Diversification Opportunities for Small Cap and Transam Short-term

0.2

Correlation Coefficient

Small Cap  Transam Short-term

Modest diversification

The 3 months correlation between Small and Transam is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and Transam Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transam Short Term 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 Value Series are associated (or correlated) with Transam Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transam Short Term has no effect on the direction of Small Cap i.e., Small Cap and Transam Short-term go up and down completely randomly.

Pair Corralation between Small Cap and Transam Short-term

Assuming the 90 days horizon Small Cap Value Series is expected to generate 9.41 times more return on investment than Transam Short-term. However, Small Cap is 9.41 times more volatile than Transam Short Term Bond. It trades about 0.03 of its potential returns per unit of risk. Transam Short Term Bond is currently generating about 0.12 per unit of risk. If you would invest  1,923  in Small Cap Value Series on October 9, 2024 and sell it today you would earn a total of  180.00  from holding Small Cap Value Series or generate 9.36% return on investment over 90 days.

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

Small Cap Value Series  vs.  Transam Short Term Bond

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Transam Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transam Short Term Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Transam Short-term 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 Transam Short-term

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

The idea behind Small Cap Value Series and Transam Short Term Bond 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.