Correlation Between Smallcap and Smallcap Growth

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

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

Diversification Opportunities for Smallcap and Smallcap Growth

0.87

Correlation Coefficient

Smallcap  Smallcap Growth

Very poor diversification

The 3 months correlation between Smallcap and Smallcap is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Growth and Smallcap 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 Sp 600 are associated (or correlated) with Smallcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of Smallcap i.e., Smallcap and Smallcap Growth go up and down completely randomly.

Pair Corralation between Smallcap and Smallcap Growth

Assuming the 90 days horizon Smallcap is expected to generate 1.02 times less return on investment than Smallcap Growth. In addition to that, Smallcap is 1.14 times more volatile than Smallcap Growth Fund. It trades about 0.1 of its total potential returns per unit of risk. Smallcap Growth Fund is currently generating about 0.12 per unit of volatility. If you would invest  1,427  in Smallcap Growth Fund on May 19, 2025 and sell it today you would earn a total of  106.00  from holding Smallcap Growth Fund or generate 7.43% return on investment over 90 days.

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

Smallcap Sp 600  vs.  Smallcap Growth Fund

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 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Smallcap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Smallcap Growth

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Growth may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Smallcap and Smallcap Growth

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

The idea behind Smallcap Sp 600 and Smallcap Growth 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.