Correlation Between Small Cap and Multi Manager

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

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

Diversification Opportunities for Small Cap and Multi Manager

0.93

Correlation Coefficient

Small Cap  Multi Manager

Almost no diversification

The 3 months correlation between Small and Multi is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Multi Manager High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Manager High and Small Cap 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 Core are associated (or correlated) with Multi Manager. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Manager High has no effect on the direction of Small Cap i.e., Small Cap and Multi Manager go up and down completely randomly.

Pair Corralation between Small Cap and Multi Manager

Assuming the 90 days horizon Small Cap Core is expected to generate 7.26 times more return on investment than Multi Manager. However, Small Cap is 7.26 times more volatile than Multi Manager High Yield. It trades about 0.07 of its potential returns per unit of risk. Multi Manager High Yield is currently generating about 0.31 per unit of risk. If you would invest  1,131  in Small Cap Core on May 12, 2025 and sell it today you would earn a total of  46.00  from holding Small Cap Core or generate 4.07% 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 Core  vs.  Multi Manager High Yield

Small Cap Core

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Multi Manager High

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Manager High Yield are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multi Manager is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Multi Manager

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

The idea behind Small Cap Core and Multi Manager High Yield 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.