Correlation Between Smallcap Fund and Large Cap

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

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

Diversification Opportunities for Smallcap Fund and Large Cap

0.83

Correlation Coefficient

Smallcap Fund  Large Cap

Very poor diversification

The 3 months correlation between Smallcap and Large is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Large Cap International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap International and Smallcap Fund 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 Smallcap Fund Fka are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap International has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Large Cap go up and down completely randomly.

Pair Corralation between Smallcap Fund and Large Cap

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 1.3 times more return on investment than Large Cap. However, Smallcap Fund is 1.3 times more volatile than Large Cap International. It trades about 0.16 of its potential returns per unit of risk. Large Cap International is currently generating about 0.15 per unit of risk. If you would invest  2,465  in Smallcap Fund Fka on May 19, 2025 and sell it today you would earn a total of  238.00  from holding Smallcap Fund Fka or generate 9.66% return on investment over 90 days.

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

Smallcap Fund Fka  vs.  Large Cap International

Smallcap Fund Fka

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Fund Fka are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Smallcap Fund may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Large Cap International

Risk-Adjusted Performance

Good

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

Pair Trading with Smallcap Fund and Large Cap

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

The idea behind Smallcap Fund Fka and Large Cap International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.