Correlation Between Sp Smallcap and Energy Fund

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

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

Diversification Opportunities for Sp Smallcap and Energy Fund

0.87

Correlation Coefficient

Sp Smallcap  Energy Fund

Very poor diversification

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

Pair Corralation between Sp Smallcap and Energy Fund

Assuming the 90 days horizon Sp Smallcap 600 is expected to generate 1.2 times more return on investment than Energy Fund. However, Sp Smallcap is 1.2 times more volatile than Energy Fund Class. It trades about 0.12 of its potential returns per unit of risk. Energy Fund Class is currently generating about 0.12 per unit of risk. If you would invest  17,315  in Sp Smallcap 600 on May 5, 2025 and sell it today you would earn a total of  1,915  from holding Sp Smallcap 600 or generate 11.06% return on investment over 90 days.

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

Sp Smallcap 600  vs.  Energy Fund Class

Sp Smallcap 600

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Smallcap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Energy Fund Class

Risk-Adjusted Performance

OK

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

Pair Trading with Sp Smallcap and Energy Fund

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

The idea behind Sp Smallcap 600 and Energy Fund Class 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.