Correlation Between NYSE Composite and Small Cap

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

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

Diversification Opportunities for NYSE Composite and Small Cap

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Correlation Coefficient

NYSE Composite  Small Cap

Pay attention - limited upside

The 3 months correlation between NYSE and Small is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Small Cap go up and down completely randomly.

Pair Corralation between NYSE Composite and Small Cap

If you would invest (100.00) in Small Cap Value on October 10, 2024 and sell it today you would earn a total of  100.00  from holding Small Cap Value or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

NYSE Composite  vs.  Small Cap Value

Pair Trading with NYSE Composite and Small Cap

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