Correlation Between Small Cap and Capital Growth
Can any of the company-specific risk be diversified away by investing in both Small Cap and Capital Growth 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 Capital Growth 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 Capital Growth Fund, you can compare the effects of market volatilities on Small Cap and Capital Growth 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 Capital Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Capital Growth.
Diversification Opportunities for Small Cap and Capital Growth
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Capital is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Growth 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 Capital Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of Small Cap i.e., Small Cap and Capital Growth go up and down completely randomly.
Pair Corralation between Small Cap and Capital Growth
Assuming the 90 days horizon Small Cap is expected to generate 1.11 times less return on investment than Capital Growth. In addition to that, Small Cap is 1.44 times more volatile than Capital Growth Fund. It trades about 0.03 of its total potential returns per unit of risk. Capital Growth Fund is currently generating about 0.05 per unit of volatility. If you would invest 1,032 in Capital Growth Fund on September 23, 2024 and sell it today you would earn a total of 242.00 from holding Capital Growth Fund or generate 23.45% 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. Capital Growth Fund
Performance |
Timeline |
Small Cap Stock |
Capital Growth |
Small Cap and Capital Growth Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Capital Growth
The main advantage of trading using opposite Small Cap and Capital Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Capital Growth 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 Capital Growth will offset losses from the drop in Capital Growth's long position.Small Cap vs. Capital Growth Fund | Small Cap vs. Emerging Markets Fund | Small Cap vs. High Income Fund | Small Cap vs. International Fund International |
Capital Growth vs. Emerging Markets Fund | Capital Growth vs. High Income Fund | Capital Growth vs. International Fund International | Capital Growth vs. Growth Income Fund |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
Other Complementary Tools
Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
Equity Valuation Check real value of public entities based on technical and fundamental data | |
Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm |