Correlation Between Smallcap and State Farm
Can any of the company-specific risk be diversified away by investing in both Smallcap and State Farm 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 Smallcap and State Farm into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap Sp 600 and State Farm International, you can compare the effects of market volatilities on Smallcap and State Farm 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 Smallcap with a short position of State Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap and State Farm.
Diversification Opportunities for Smallcap and State Farm
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Smallcap and State is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and State Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm International and Smallcap 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 Smallcap Sp 600 are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm International has no effect on the direction of Smallcap i.e., Smallcap and State Farm go up and down completely randomly.
Pair Corralation between Smallcap and State Farm
Assuming the 90 days horizon Smallcap Sp 600 is expected to generate 4.14 times more return on investment than State Farm. However, Smallcap is 4.14 times more volatile than State Farm International. It trades about 0.13 of its potential returns per unit of risk. State Farm International is currently generating about -0.1 per unit of risk. If you would invest 2,707 in Smallcap Sp 600 on September 17, 2024 and sell it today you would earn a total of 228.00 from holding Smallcap Sp 600 or generate 8.42% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 79.69% |
Values | Daily Returns |
Smallcap Sp 600 vs. State Farm International
Performance |
Timeline |
Smallcap Sp 600 |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
State Farm International |
Smallcap and State Farm Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Smallcap and State Farm
The main advantage of trading using opposite Smallcap and State Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap position performs unexpectedly, State Farm 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 State Farm will offset losses from the drop in State Farm's long position.Smallcap vs. Strategic Asset Management | Smallcap vs. Strategic Asset Management | Smallcap vs. Strategic Asset Management | Smallcap vs. Strategic Asset Management |
State Farm vs. State Farm Growth | State Farm vs. State Farm Balanced | State Farm vs. State Farm Municipal | State Farm vs. State Farm Interim |
Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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