Correlation Between Small Cap and Nasdaq 100
Can any of the company-specific risk be diversified away by investing in both Small Cap and Nasdaq 100 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 Small Cap and Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Stock and Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Small Cap and Nasdaq 100 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 Small Cap with a short position of Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Nasdaq 100.
Diversification Opportunities for Small Cap and Nasdaq 100
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Nasdaq is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 2x and Small Cap 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 Small Cap Stock are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Small Cap i.e., Small Cap and Nasdaq 100 go up and down completely randomly.
Pair Corralation between Small Cap and Nasdaq 100
Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Nasdaq 100. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Stock is 1.98 times less risky than Nasdaq 100. The mutual fund trades about -0.42 of its potential returns per unit of risk. The Nasdaq 100 2x Strategy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 41,279 in Nasdaq 100 2x Strategy on September 25, 2024 and sell it today you would earn a total of 464.00 from holding Nasdaq 100 2x Strategy or generate 1.12% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Small Cap Stock vs. Nasdaq 100 2x Strategy
Performance |
Timeline |
Small Cap Stock |
Nasdaq 100 2x |
Small Cap and Nasdaq 100 Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Nasdaq 100
The main advantage of trading using opposite Small Cap and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.Small Cap vs. Nasdaq 100 2x Strategy | Small Cap vs. Rbc Emerging Markets | Small Cap vs. Shelton Emerging Markets | Small Cap vs. Artisan Emerging Markets |
Nasdaq 100 vs. Morningstar Unconstrained Allocation | Nasdaq 100 vs. Jhancock Disciplined Value | Nasdaq 100 vs. Qs Large Cap | Nasdaq 100 vs. T Rowe Price |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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