Correlation Between Us Small and Small Cap

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

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

Diversification Opportunities for Us Small and Small Cap

0.52

Correlation Coefficient

Us Small  Small Cap

Very weak diversification

The 3 months correlation between DFSTX and Small is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Us Small Cap and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Us Small 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 Us Small Cap 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 Stock has no effect on the direction of Us Small i.e., Us Small and Small Cap go up and down completely randomly.

Pair Corralation between Us Small and Small Cap

Assuming the 90 days horizon Us Small is expected to generate 1.1 times less return on investment than Small Cap. But when comparing it to its historical volatility, Us Small Cap is 1.06 times less risky than Small Cap. It trades about 0.21 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,163  in Small Cap Stock on April 23, 2025 and sell it today you would earn a total of  187.00  from holding Small Cap Stock or generate 16.08% return on investment over 90 days.

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

Us Small Cap  vs.  Small Cap Stock

Us Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Us Small Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly unfluctuating basic indicators, Us Small showed solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Stock

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Us Small and Small Cap

The main advantage of trading using opposite Us Small and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Small 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 Us Small Cap and Small Cap Stock 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.