Correlation Between Small Cap and Voya Prime

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

By analyzing existing cross correlation between Small Cap Growth Profund and Voya Prime Rate, you can compare the effects of market volatilities on Small Cap and Voya Prime 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 Voya Prime. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Voya Prime.

Diversification Opportunities for Small Cap and Voya Prime

0.6

Correlation Coefficient

Small Cap  Voya Prime

Poor diversification

The 3 months correlation between Small and Voya is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth Profund and Voya Prime Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Voya Prime Rate 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 Growth Profund are associated (or correlated) with Voya Prime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Voya Prime Rate has no effect on the direction of Small Cap i.e., Small Cap and Voya Prime go up and down completely randomly.

Pair Corralation between Small Cap and Voya Prime

Assuming the 90 days horizon Small Cap is expected to generate 3.9 times less return on investment than Voya Prime. In addition to that, Small Cap is 1.1 times more volatile than Voya Prime Rate. It trades about 0.08 of its total potential returns per unit of risk. Voya Prime Rate is currently generating about 0.33 per unit of volatility. If you would invest  749.00  in Voya Prime Rate on March 23, 2025 and sell it today you would earn a total of  33.00  from holding Voya Prime Rate or generate 4.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	80.0%
Values	Daily Returns

Small Cap Growth Profund  vs.  Voya Prime Rate

Small Cap Growth

Risk-Adjusted Performance

Very Weak

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

Voya Prime Rate

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Voya Prime Rate are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Voya Prime 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 Voya Prime

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

The idea behind Small Cap Growth Profund and Voya Prime Rate 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.