Correlation Between Small Cap and Nasdaq-100 Index

Can any of the company-specific risk be diversified away by investing in both Small Cap and Nasdaq-100 Index 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 Nasdaq-100 Index into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Special and Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Small Cap and Nasdaq-100 Index 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 Nasdaq-100 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Nasdaq-100 Index.

Diversification Opportunities for Small Cap and Nasdaq-100 Index

0.8

Correlation Coefficient

Small Cap  Nasdaq-100 Index

Very poor diversification

The 3 months correlation between Small and Nasdaq-100 is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Special and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 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 Special are associated (or correlated) with Nasdaq-100 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Small Cap i.e., Small Cap and Nasdaq-100 Index go up and down completely randomly.

Pair Corralation between Small Cap and Nasdaq-100 Index

Assuming the 90 days horizon Small Cap Special is expected to generate 0.49 times more return on investment than Nasdaq-100 Index. However, Small Cap Special is 2.04 times less risky than Nasdaq-100 Index. It trades about -0.16 of its potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about -0.15 per unit of risk. If you would invest  1,234  in Small Cap Special on December 29, 2024 and sell it today you would lose (176.00) from holding Small Cap Special or give up 14.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Small Cap Special  vs.  Nasdaq 100 Index Fund

Small Cap Special

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Special has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Nasdaq 100 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Index Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Small Cap and Nasdaq-100 Index

The main advantage of trading using opposite Small Cap and Nasdaq-100 Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Nasdaq-100 Index 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 Nasdaq-100 Index will offset losses from the drop in Nasdaq-100 Index's long position.

The idea behind Small Cap Special and Nasdaq 100 Index Fund 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.