Correlation Between Lsv Small and Smallcap

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

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

Diversification Opportunities for Lsv Small and Smallcap

0.55

Correlation Coefficient

Lsv Small  Smallcap

Very weak diversification

The 3 months correlation between Lsv and Smallcap is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Lsv Small Cap 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 Lsv 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 Lsv Small Cap 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 Lsv Small i.e., Lsv Small and Smallcap go up and down completely randomly.

Pair Corralation between Lsv Small and Smallcap

Assuming the 90 days horizon Lsv Small Cap is expected to under-perform the Smallcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Lsv Small Cap is 1.18 times less risky than Smallcap. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Smallcap Sp 600 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,561  in Smallcap Sp 600 on August 21, 2025 and sell it today you would earn a total of  12.00  from holding Smallcap Sp 600 or generate 0.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Lsv Small Cap  vs.  Smallcap Sp 600

Lsv Small Cap

Risk-Adjusted Performance

Weakest

Over the last 90 days Lsv Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lsv Small 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

Weakest

Over the last 90 days Smallcap Sp 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lsv Small and Smallcap

The main advantage of trading using opposite Lsv Small and Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lsv Small 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 Lsv Small Cap 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.