Correlation Between Small-cap Value and Nasdaq-100 Index

Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Nasdaq-100 Index 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 Value and Nasdaq-100 Index into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Value Series and Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Small-cap Value and Nasdaq-100 Index 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 Value with a short position of Nasdaq-100 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Nasdaq-100 Index.

Diversification Opportunities for Small-cap Value and Nasdaq-100 Index

0.95

Correlation Coefficient

Small-cap Value  Nasdaq-100 Index

Almost no diversification

The 3 months correlation between Small-cap and Nasdaq-100 is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index and Small-cap Value 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 Value Series are associated (or correlated) with Nasdaq-100 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Small-cap Value i.e., Small-cap Value and Nasdaq-100 Index go up and down completely randomly.

Pair Corralation between Small-cap Value and Nasdaq-100 Index

Assuming the 90 days horizon Small-cap Value is expected to generate 1.37 times less return on investment than Nasdaq-100 Index. In addition to that, Small-cap Value is 1.23 times more volatile than Nasdaq 100 Index Fund. It trades about 0.18 of its total potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.31 per unit of volatility. If you would invest  2,137  in Nasdaq 100 Index Fund on May 1, 2025 and sell it today you would earn a total of  382.00  from holding Nasdaq 100 Index Fund or generate 17.88% return on investment over 90 days.

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

Small Cap Value Series  vs.  Nasdaq 100 Index Fund

Small Cap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Series are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small-cap Value showed solid returns over the last few months and may actually be approaching a breakup point.

Nasdaq 100 Index

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Index Fund are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Nasdaq-100 Index showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small-cap Value and Nasdaq-100 Index

The main advantage of trading using opposite Small-cap Value and Nasdaq-100 Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value position performs unexpectedly, Nasdaq-100 Index 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 Nasdaq-100 Index will offset losses from the drop in Nasdaq-100 Index's long position.

The idea behind Small Cap Value Series and Nasdaq 100 Index Fund 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.