Correlation Between Small Cap and Blackrock Large

Can any of the company-specific risk be diversified away by investing in both Small Cap and Blackrock Large 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 Blackrock Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Index and Blackrock Large Cap, you can compare the effects of market volatilities on Small Cap and Blackrock Large 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 Blackrock Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Blackrock Large.

Diversification Opportunities for Small Cap and Blackrock Large

0.93

Correlation Coefficient

Small Cap  Blackrock Large

Almost no diversification

The 3 months correlation between Small and Blackrock is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Index and Blackrock Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackrock Large Cap 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 Index are associated (or correlated) with Blackrock Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackrock Large Cap has no effect on the direction of Small Cap i.e., Small Cap and Blackrock Large go up and down completely randomly.

Pair Corralation between Small Cap and Blackrock Large

Assuming the 90 days horizon Small Cap Index is expected to under-perform the Blackrock Large. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Index is 1.2 times less risky than Blackrock Large. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Blackrock Large Cap is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  897.00  in Blackrock Large Cap on December 22, 2024 and sell it today you would lose (96.00) from holding Blackrock Large Cap or give up 10.7% of portfolio value over 90 days.

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

Small Cap Index  vs.  Blackrock Large Cap

Small Cap Index

Risk-Adjusted Performance

Very Weak

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

Blackrock Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Blackrock Large Cap 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.

Pair Trading with Small Cap and Blackrock Large

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

The idea behind Small Cap Index and Blackrock Large Cap 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.