Correlation Between Small Cap and SPACE

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

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

Diversification Opportunities for Small Cap and SPACE

0.43

Correlation Coefficient

Small Cap  SPACE

Very weak diversification

The 3 months correlation between Small and SPACE is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and SPACE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPACE and Small Cap 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 Small Cap Core are associated (or correlated) with SPACE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPACE has no effect on the direction of Small Cap i.e., Small Cap and SPACE go up and down completely randomly.

Pair Corralation between Small Cap and SPACE

Assuming the 90 days horizon Small Cap Core is expected to generate 0.19 times more return on investment than SPACE. However, Small Cap Core is 5.15 times less risky than SPACE. It trades about -0.12 of its potential returns per unit of risk. SPACE is currently generating about -0.12 per unit of risk. If you would invest  1,196  in Small Cap Core on December 29, 2024 and sell it today you would lose (109.00) from holding Small Cap Core or give up 9.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.31%
Values	Daily Returns

Small Cap Core  vs.  SPACE

Small Cap Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

SPACE

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPACE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for SPACE shareholders.

Pair Trading with Small Cap and SPACE

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

The idea behind Small Cap Core and SPACE 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.