Correlation Between Simt Small and Simt Large

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

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

Diversification Opportunities for Simt Small and Simt Large

0.89

Correlation Coefficient

Simt Small  Simt Large

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 Small Cap and Simt Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Large Cap and Simt 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 Simt Small Cap are associated (or correlated) with Simt Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Large Cap has no effect on the direction of Simt Small i.e., Simt Small and Simt Large go up and down completely randomly.

Pair Corralation between Simt Small and Simt Large

Assuming the 90 days horizon Simt Small Cap is expected to under-perform the Simt Large. In addition to that, Simt Small is 1.45 times more volatile than Simt Large Cap. It trades about -0.18 of its total potential returns per unit of risk. Simt Large Cap is currently generating about -0.11 per unit of volatility. If you would invest  2,867  in Simt Large Cap on December 2, 2024 and sell it today you would lose (203.00) from holding Simt Large Cap or give up 7.08% of portfolio value over 90 days.

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

Simt Small Cap  vs.  Simt Large Cap

Simt Small Cap

Risk-Adjusted Performance

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 weak performance in the last few months, the Fund's technical and fundamental 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.

Simt Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simt Large Cap 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.

Pair Trading with Simt Small and Simt Large

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

The idea behind Simt Small Cap and Simt Large 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.