Correlation Between Lifestyle and Smallcap

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

By analyzing existing cross correlation between Lifestyle Ii Growth and Smallcap Sp 600, you can compare the effects of market volatilities on Lifestyle and Smallcap 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 Lifestyle with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifestyle and Smallcap.

Diversification Opportunities for Lifestyle and Smallcap

0.39

Correlation Coefficient

Lifestyle  Smallcap

Weak diversification

The 3 months correlation between Lifestyle and Smallcap is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Lifestyle Ii Growth and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Lifestyle 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 Lifestyle Ii Growth are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Lifestyle i.e., Lifestyle and Smallcap go up and down completely randomly.

Pair Corralation between Lifestyle and Smallcap

Assuming the 90 days horizon Lifestyle Ii Growth is expected to under-perform the Smallcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Lifestyle Ii Growth is 2.16 times less risky than Smallcap. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Smallcap Sp 600 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,202  in Smallcap Sp 600 on October 8, 2025 and sell it today you would earn a total of  280.00  from holding Smallcap Sp 600 or generate 12.72% return on investment over 90 days.

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

Lifestyle Ii Growth  vs.  Smallcap Sp 600

Lifestyle Ii Growth

Risk-Adjusted Performance

Weakest

Over the last 90 days Lifestyle Ii Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Smallcap Sp 600

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Smallcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lifestyle and Smallcap

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

The idea behind Lifestyle Ii Growth and Smallcap Sp 600 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.