Correlation Between Small Cap and Small-cap Growth

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

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

Diversification Opportunities for Small Cap and Small-cap Growth

0.99

Correlation Coefficient

Small Cap  Small-cap Growth

No risk reduction

The 3 months correlation between Small and Small-cap is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Profund Small Cap and Small Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Profund Small Cap are associated (or correlated) with Small-cap Growth. 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 Growth has no effect on the direction of Small Cap i.e., Small Cap and Small-cap Growth go up and down completely randomly.

Pair Corralation between Small Cap and Small-cap Growth

Assuming the 90 days horizon Small Cap Profund Small Cap is expected to generate 1.06 times more return on investment than Small-cap Growth. However, Small Cap is 1.06 times more volatile than Small Cap Growth Profund. It trades about 0.27 of its potential returns per unit of risk. Small Cap Growth Profund is currently generating about 0.26 per unit of risk. If you would invest  9,283  in Small Cap Profund Small Cap on April 20, 2025 and sell it today you would earn a total of  1,986  from holding Small Cap Profund Small Cap or generate 21.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Small Cap Profund Small Cap  vs.  Small Cap Growth Profund

Small Cap Profund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Profund Small Cap are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Growth

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth Profund are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small-cap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Small-cap Growth

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

The idea behind Small Cap Profund Small Cap and Small Cap Growth Profund 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.