Correlation Between Small Cap and Sp 500
Can any of the company-specific risk be diversified away by investing in both Small Cap and Sp 500 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 Sp 500 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 Sp 500 Index, you can compare the effects of market volatilities on Small Cap and Sp 500 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 Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Sp 500.
Diversification Opportunities for Small Cap and Sp 500
Almost no diversification
The 3 months correlation between Small and USPRX is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Sp 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Index 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 Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 Index has no effect on the direction of Small Cap i.e., Small Cap and Sp 500 go up and down completely randomly.
Pair Corralation between Small Cap and Sp 500
Assuming the 90 days horizon Small Cap Stock is expected to generate 1.59 times more return on investment than Sp 500. However, Small Cap is 1.59 times more volatile than Sp 500 Index. It trades about 0.08 of its potential returns per unit of risk. Sp 500 Index is currently generating about 0.11 per unit of risk. If you would invest 1,313 in Small Cap Stock on September 15, 2024 and sell it today you would earn a total of 173.00 from holding Small Cap Stock or generate 13.18% 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. Sp 500 Index
Performance |
Timeline |
Small Cap Stock |
Sp 500 Index |
Small Cap and Sp 500 Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Sp 500
The main advantage of trading using opposite Small Cap and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.Small Cap vs. Income Fund Income | Small Cap vs. Usaa Nasdaq 100 | Small Cap vs. Victory Diversified Stock | Small Cap vs. Intermediate Term Bond Fund |
Sp 500 vs. Small Cap Stock | Sp 500 vs. Extended Market Index | Sp 500 vs. Value Fund Value | Sp 500 vs. Income Stock 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
Other Complementary Tools
Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences | |
USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
FinTech Suite Use AI to screen and filter profitable investment opportunities | |
Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios |