Correlation Between Small Cap and Global E

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

Diversification Opportunities for Small Cap and Global E

0.7

Correlation Coefficient

Small Cap  Global E

Poor diversification

The 3 months correlation between Small and Global is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Global E Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E 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 Global E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Portfolio has no effect on the direction of Small Cap i.e., Small Cap and Global E go up and down completely randomly.

Pair Corralation between Small Cap and Global E

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Global E. In addition to that, Small Cap is 1.82 times more volatile than Global E Portfolio. It trades about -0.34 of its total potential returns per unit of risk. Global E Portfolio is currently generating about -0.12 per unit of volatility. If you would invest  2,176  in Global E Portfolio on October 11, 2024 and sell it today you would lose (49.00) from holding Global E Portfolio or give up 2.25% of portfolio value over 90 days.

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

Small Cap Stock  vs.  Global E Portfolio

Small Cap Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Global E Portfolio

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Portfolio are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Global E is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Global E

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

The idea behind Small Cap Stock and Global E Portfolio 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.