Correlation Between Small Cap and Multimedia Portfolio

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

Diversification Opportunities for Small Cap and Multimedia Portfolio

0.83

Correlation Coefficient

Small Cap  Multimedia Portfolio

Very poor diversification

The 3 months correlation between Small and Multimedia is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Multimedia Portfolio Multimedi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multimedia Portfolio 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 Multimedia Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multimedia Portfolio has no effect on the direction of Small Cap i.e., Small Cap and Multimedia Portfolio go up and down completely randomly.

Pair Corralation between Small Cap and Multimedia Portfolio

Assuming the 90 days horizon Small Cap is expected to generate 1.78 times less return on investment than Multimedia Portfolio. In addition to that, Small Cap is 1.1 times more volatile than Multimedia Portfolio Multimedia. It trades about 0.06 of its total potential returns per unit of risk. Multimedia Portfolio Multimedia is currently generating about 0.11 per unit of volatility. If you would invest  7,757  in Multimedia Portfolio Multimedia on September 12, 2024 and sell it today you would earn a total of  3,800  from holding Multimedia Portfolio Multimedia or generate 48.99% return on investment over 90 days.

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

Small Cap Stock  vs.  Multimedia Portfolio Multimedi

Small Cap Stock

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Multimedia Portfolio

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multimedia Portfolio Multimedia are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Multimedia Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Multimedia Portfolio

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

The idea behind Small Cap Stock and Multimedia Portfolio Multimedia 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 Global Correlations module to find global opportunities by holding instruments from different markets.