Correlation Between Nationwide Government and Smallcap

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

By analyzing existing cross correlation between Nationwide Government Bond and Smallcap Sp 600, you can compare the effects of market volatilities on Nationwide Government and Smallcap 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 Nationwide Government with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nationwide Government and Smallcap.

Diversification Opportunities for Nationwide Government and Smallcap

-0.31

Correlation Coefficient

Nationwide Government  Smallcap

Very good diversification

The 3 months correlation between Nationwide and Smallcap is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Nationwide Government Bond and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Nationwide Government 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 Nationwide Government Bond are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Nationwide Government i.e., Nationwide Government and Smallcap go up and down completely randomly.

Pair Corralation between Nationwide Government and Smallcap

Assuming the 90 days horizon Nationwide Government is expected to generate 3.04 times less return on investment than Smallcap. But when comparing it to its historical volatility, Nationwide Government Bond is 17.24 times less risky than Smallcap. It trades about 0.24 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,366  in Smallcap Sp 600 on October 10, 2024 and sell it today you would earn a total of  569.00  from holding Smallcap Sp 600 or generate 24.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.55%
Values	Daily Returns

Nationwide Government Bond  vs.  Smallcap Sp 600

Nationwide Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Smallcap Sp 600

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Smallcap Sp 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Smallcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nationwide Government and Smallcap

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

The idea behind Nationwide Government Bond and Smallcap Sp 600 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 Stocks Directory module to find actively traded stocks across global markets.