Correlation Between Simt Sp and Simt Small

Can any of the company-specific risk be diversified away by investing in both Simt Sp 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 Sp 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 Sp 500 and Simt Small Cap, you can compare the effects of market volatilities on Simt Sp 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 Sp with a short position of Simt Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Simt Sp and Simt Small.

Diversification Opportunities for Simt Sp and Simt Small

0.96

Correlation Coefficient

Simt Sp  Simt Small

Almost no diversification

The 3 months correlation between Simt and Simt is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Simt Sp 500 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 Sp 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 Sp 500 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 Sp i.e., Simt Sp and Simt Small go up and down completely randomly.

Pair Corralation between Simt Sp and Simt Small

Assuming the 90 days horizon Simt Sp 500 is expected to generate 0.43 times more return on investment than Simt Small. However, Simt Sp 500 is 2.32 times less risky than Simt Small. It trades about 0.07 of its potential returns per unit of risk. Simt Small Cap is currently generating about -0.1 per unit of risk. If you would invest  10,713  in Simt Sp 500 on September 12, 2024 and sell it today you would earn a total of  73.00  from holding Simt Sp 500 or generate 0.68% return on investment over 90 days.

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

Simt Sp 500  vs.  Simt Small Cap

Simt Sp 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Simt Sp 500 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Simt Sp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Simt Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simt 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, Simt Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Simt Sp and Simt Small

The main advantage of trading using opposite Simt Sp and Simt Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Simt Sp 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 Sp 500 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.