Correlation Between Us Government and Small-cap Growth

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

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

Diversification Opportunities for Us Government and Small-cap Growth

0.32

Correlation Coefficient

Us Government  Small-cap Growth

Weak diversification

The 3 months correlation between GVPSX and Small-cap is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Plus and Small Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Us Government 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 Government Plus are associated (or correlated) with Small-cap Growth. 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 Us Government i.e., Us Government and Small-cap Growth go up and down completely randomly.

Pair Corralation between Us Government and Small-cap Growth

Assuming the 90 days horizon Us Government is expected to generate 3.32 times less return on investment than Small-cap Growth. But when comparing it to its historical volatility, Us Government Plus is 1.15 times less risky than Small-cap Growth. It trades about 0.03 of its potential returns per unit of risk. Small Cap Growth Profund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,586  in Small Cap Growth Profund on May 17, 2025 and sell it today you would earn a total of  534.00  from holding Small Cap Growth Profund or generate 5.04% return on investment over 90 days.

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

Us Government Plus  vs.  Small Cap Growth Profund

Us Government Plus

Risk-Adjusted Performance

Weak

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

Small Cap Growth

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth Profund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Small-cap Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Small-cap Growth

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

The idea behind Us Government Plus and Small Cap Growth Profund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.