Correlation Between Stellar and Small Cap

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

By analyzing existing cross correlation between Stellar and Small Cap Growth, you can compare the effects of market volatilities on Stellar and Small Cap 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 Stellar with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stellar and Small Cap.

Diversification Opportunities for Stellar and Small Cap

0.18

Correlation Coefficient

Stellar  Small Cap

Average diversification

The 3 months correlation between Stellar and Small is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Stellar 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 Stellar are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Stellar i.e., Stellar and Small Cap go up and down completely randomly.

Pair Corralation between Stellar and Small Cap

Assuming the 90 days trading horizon Stellar is expected to generate 7.91 times more return on investment than Small Cap. However, Stellar is 7.91 times more volatile than Small Cap Growth. It trades about 0.15 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.14 per unit of risk. If you would invest  35.00  in Stellar on October 26, 2024 and sell it today you would earn a total of  8.00  from holding Stellar or generate 22.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Stellar  vs.  Small Cap Growth

Stellar

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Stellar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Growth

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stellar and Small Cap

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

The idea behind Stellar and Small Cap Growth 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.