Correlation Between Sp Smallcap and Old Westbury

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

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

Diversification Opportunities for Sp Smallcap and Old Westbury

0.9

Correlation Coefficient

Sp Smallcap  Old Westbury

Almost no diversification

The 3 months correlation between RYSVX and Old is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Old Westbury Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Westbury Small and Sp 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 Sp Smallcap 600 are associated (or correlated) with Old Westbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Westbury Small has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Old Westbury go up and down completely randomly.

Pair Corralation between Sp Smallcap and Old Westbury

Assuming the 90 days horizon Sp Smallcap 600 is expected to generate 2.11 times more return on investment than Old Westbury. However, Sp Smallcap is 2.11 times more volatile than Old Westbury Small. It trades about 0.16 of its potential returns per unit of risk. Old Westbury Small is currently generating about 0.14 per unit of risk. If you would invest  19,119  in Sp Smallcap 600 on September 12, 2024 and sell it today you would earn a total of  2,763  from holding Sp Smallcap 600 or generate 14.45% return on investment over 90 days.

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

Sp Smallcap 600  vs.  Old Westbury Small

Sp Smallcap 600

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Smallcap showed solid returns over the last few months and may actually be approaching a breakup point.

Old Westbury Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Westbury Small are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Old Westbury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp Smallcap and Old Westbury

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

The idea behind Sp Smallcap 600 and Old Westbury Small 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.