Correlation Between Qs Defensive and Small Cap

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

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

Diversification Opportunities for Qs Defensive and Small Cap

0.55

Correlation Coefficient

Qs Defensive  Small Cap

Very weak diversification

The 3 months correlation between LMLRX and Small is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Qs Defensive Growth and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Qs Defensive 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 Qs Defensive Growth 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 Core has no effect on the direction of Qs Defensive i.e., Qs Defensive and Small Cap go up and down completely randomly.

Pair Corralation between Qs Defensive and Small Cap

Assuming the 90 days horizon Qs Defensive is expected to generate 2.5 times less return on investment than Small Cap. But when comparing it to its historical volatility, Qs Defensive Growth is 4.14 times less risky than Small Cap. It trades about 0.24 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,132  in Small Cap Core on May 27, 2025 and sell it today you would earn a total of  121.00  from holding Small Cap Core or generate 10.69% return on investment over 90 days.

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

Qs Defensive Growth  vs.  Small Cap Core

Qs Defensive Growth

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Qs Defensive Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Qs Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Core

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Qs Defensive and Small Cap

The main advantage of trading using opposite Qs Defensive and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qs Defensive 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 Qs Defensive Growth and Small Cap Core 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.