Correlation Between Simt Mid and Simt Small

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

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

Diversification Opportunities for Simt Mid and Simt Small

0.89

Correlation Coefficient

Simt Mid  Simt Small

Very poor diversification

The 3 months correlation between Simt and Simt is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Simt Mid Cap and Simt Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Small Cap and Simt Mid 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 Simt Mid Cap are associated (or correlated) with Simt Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Small Cap has no effect on the direction of Simt Mid i.e., Simt Mid and Simt Small go up and down completely randomly.

Pair Corralation between Simt Mid and Simt Small

Assuming the 90 days horizon Simt Mid Cap is expected to under-perform the Simt Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Simt Mid Cap is 1.2 times less risky than Simt Small. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Simt Small Cap is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,718  in Simt Small Cap on October 8, 2024 and sell it today you would lose (87.00) from holding Simt Small Cap or give up 2.34% of portfolio value over 90 days.

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

Simt Mid Cap  vs.  Simt Small Cap

Simt Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simt Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Simt Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Simt Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simt Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Simt Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Simt Mid and Simt Small

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

The idea behind Simt Mid Cap and Simt Small Cap 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.