Correlation Between Small Cap and Responsible Esg

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

Diversification Opportunities for Small Cap and Responsible Esg

0.96

Correlation Coefficient

Small Cap  Responsible Esg

Almost no diversification

The 3 months correlation between Small and Responsible is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Responsible Esg Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Responsible Esg Equity 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 Responsible Esg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Responsible Esg Equity has no effect on the direction of Small Cap i.e., Small Cap and Responsible Esg go up and down completely randomly.

Pair Corralation between Small Cap and Responsible Esg

Assuming the 90 days horizon Small Cap Stock is expected to generate 1.75 times more return on investment than Responsible Esg. However, Small Cap is 1.75 times more volatile than Responsible Esg Equity. It trades about 0.14 of its potential returns per unit of risk. Responsible Esg Equity is currently generating about 0.19 per unit of risk. If you would invest  1,374  in Small Cap Stock on September 5, 2024 and sell it today you would earn a total of  155.00  from holding Small Cap Stock or generate 11.28% return on investment over 90 days.

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

Small Cap Stock  vs.  Responsible Esg Equity

Small Cap Stock

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 11 (%) 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.

Responsible Esg Equity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Responsible Esg Equity are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Responsible Esg may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small Cap and Responsible Esg

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

The idea behind Small Cap Stock and Responsible Esg Equity 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.