Correlation Between Us Strategic and Small Cap

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

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

Diversification Opportunities for Us Strategic and Small Cap

0.89

Correlation Coefficient

Us Strategic  Small Cap

Very poor diversification

The 3 months correlation between RUSTX and Small is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Us Strategic Equity and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Us Strategic 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 Us Strategic Equity 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 Equity has no effect on the direction of Us Strategic i.e., Us Strategic and Small Cap go up and down completely randomly.

Pair Corralation between Us Strategic and Small Cap

Assuming the 90 days horizon Us Strategic Equity is expected to generate 0.51 times more return on investment than Small Cap. However, Us Strategic Equity is 1.97 times less risky than Small Cap. It trades about 0.21 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.09 per unit of risk. If you would invest  1,731  in Us Strategic Equity on September 12, 2024 and sell it today you would earn a total of  162.00  from holding Us Strategic Equity or generate 9.36% return on investment over 90 days.

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

Us Strategic Equity  vs.  Small Cap Equity

Us Strategic Equity

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Us Strategic Equity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Us Strategic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Small Cap Equity

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Us Strategic and Small Cap

The main advantage of trading using opposite Us Strategic and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Strategic 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 Us Strategic Equity and Small Cap Equity 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.