Correlation Between Small Cap and Steven Madden

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

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

Diversification Opportunities for Small Cap and Steven Madden

-0.74

Correlation Coefficient

Small Cap  Steven Madden

Pay attention - limited upside

The 3 months correlation between Small and Steven is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Steven Madden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steven Madden 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 Premium are associated (or correlated) with Steven Madden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steven Madden has no effect on the direction of Small Cap i.e., Small Cap and Steven Madden go up and down completely randomly.

Pair Corralation between Small Cap and Steven Madden

Considering the 90-day investment horizon Small Cap Premium is expected to generate 0.54 times more return on investment than Steven Madden. However, Small Cap Premium is 1.86 times less risky than Steven Madden. It trades about 0.07 of its potential returns per unit of risk. Steven Madden is currently generating about -0.09 per unit of risk. If you would invest  2,368  in Small Cap Premium on February 1, 2024 and sell it today you would earn a total of  50.00  from holding Small Cap Premium or generate 2.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Small Cap Premium  vs.  Steven Madden

Small Cap Premium

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steven Madden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Steven Madden

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

The idea behind Small Cap Premium and Steven Madden 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.