Correlation Between Selected American and Small Cap

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

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

Diversification Opportunities for Selected American and Small Cap

0.0

Correlation Coefficient

Selected American  Small Cap

Pay attention - limited upside

The 3 months correlation between Selected and Small is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Selected American Shares and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Selected American 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 Selected American Shares are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Selected American i.e., Selected American and Small Cap go up and down completely randomly.

Pair Corralation between Selected American and Small Cap

If you would invest  1,252  in Small Cap Stock on May 15, 2025 and sell it today you would earn a total of  60.00  from holding Small Cap Stock or generate 4.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Selected American Shares  vs.  Small Cap Stock

Selected American Shares

Risk-Adjusted Performance

Good

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

Small Cap Stock

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 6 (%) 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.

Pair Trading with Selected American and Small Cap

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

The idea behind Selected American Shares and Small Cap Stock 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.