Correlation Between Sentinel Small and Small Cap

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

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

Diversification Opportunities for Sentinel Small and Small Cap

0.92

Correlation Coefficient

Sentinel Small  Small Cap

Almost no diversification

The 3 months correlation between Sentinel and Small is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Sentinel Small 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 Sentinel Small Pany 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 Stock has no effect on the direction of Sentinel Small i.e., Sentinel Small and Small Cap go up and down completely randomly.

Pair Corralation between Sentinel Small and Small Cap

Assuming the 90 days horizon Sentinel Small Pany is expected to generate 0.9 times more return on investment than Small Cap. However, Sentinel Small Pany is 1.11 times less risky than Small Cap. It trades about -0.2 of its potential returns per unit of risk. Small Cap Stock is currently generating about -0.23 per unit of risk. If you would invest  777.00  in Sentinel Small Pany on December 1, 2024 and sell it today you would lose (95.00) from holding Sentinel Small Pany or give up 12.23% of portfolio value over 90 days.

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

Sentinel Small Pany  vs.  Small Cap Stock

Sentinel Small Pany

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sentinel Small Pany has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small Cap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Sentinel Small and Small Cap

The main advantage of trading using opposite Sentinel Small and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sentinel Small 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 Sentinel Small Pany and Small Cap Stock 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.