Correlation Between Inflation-linked and Small Pany

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

By analyzing existing cross correlation between Inflation Linked Fixed Income and Small Pany Growth, you can compare the effects of market volatilities on Inflation-linked and Small Pany 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 Inflation-linked with a short position of Small Pany. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation-linked and Small Pany.

Diversification Opportunities for Inflation-linked and Small Pany

-0.62

Correlation Coefficient

Inflation-linked  Small Pany

Excellent diversification

The 3 months correlation between Inflation-linked and Small is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Linked Fixed Income and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Inflation-linked 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 Inflation Linked Fixed Income are associated (or correlated) with Small Pany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Inflation-linked i.e., Inflation-linked and Small Pany go up and down completely randomly.

Pair Corralation between Inflation-linked and Small Pany

Assuming the 90 days horizon Inflation Linked Fixed Income is expected to generate 0.12 times more return on investment than Small Pany. However, Inflation Linked Fixed Income is 8.23 times less risky than Small Pany. It trades about 0.21 of its potential returns per unit of risk. Small Pany Growth is currently generating about -0.06 per unit of risk. If you would invest  805.00  in Inflation Linked Fixed Income on December 25, 2024 and sell it today you would earn a total of  28.00  from holding Inflation Linked Fixed Income or generate 3.48% return on investment over 90 days.

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

Inflation Linked Fixed Income  vs.  Small Pany Growth

Inflation Linked Fixed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Inflation Linked Fixed Income are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inflation-linked is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential 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 Inflation-linked and Small Pany

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

The idea behind Inflation Linked Fixed Income and Small Pany Growth 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.