Correlation Between Sit Large and Sit Small

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

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

Diversification Opportunities for Sit Large and Sit Small

0.93

Correlation Coefficient

Sit Large  Sit Small

Almost no diversification

The 3 months correlation between Sit and Sit is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Sit Large Cap and Sit Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sit Small Cap and Sit Large 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 Sit Large Cap are associated (or correlated) with Sit Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sit Small Cap has no effect on the direction of Sit Large i.e., Sit Large and Sit Small go up and down completely randomly.

Pair Corralation between Sit Large and Sit Small

Assuming the 90 days horizon Sit Large Cap is expected to generate 0.89 times more return on investment than Sit Small. However, Sit Large Cap is 1.13 times less risky than Sit Small. It trades about 0.11 of its potential returns per unit of risk. Sit Small Cap is currently generating about 0.06 per unit of risk. If you would invest  4,705  in Sit Large Cap on September 5, 2024 and sell it today you would earn a total of  3,313  from holding Sit Large Cap or generate 70.41% return on investment over 90 days.

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

Sit Large Cap  vs.  Sit Small Cap

Sit Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sit Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Sit Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sit Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sit Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Sit Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sit Large and Sit Small

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

The idea behind Sit Large Cap and Sit 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.