Correlation Between SP Small-Cap and First Ship

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

By analyzing existing cross correlation between SP Small-Cap 600 and First Ship Lease, you can compare the effects of market volatilities on SP Small-Cap and First Ship 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 Small-Cap with a short position of First Ship. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP Small-Cap and First Ship.

Diversification Opportunities for SP Small-Cap and First Ship

0.0

Correlation Coefficient

SP Small-Cap  First Ship

Pay attention - limited upside

The 3 months correlation between SML and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding SP Small-Cap 600 and First Ship Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Ship Lease and SP 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 SP Small-Cap 600 are associated (or correlated) with First Ship. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Ship Lease has no effect on the direction of SP Small-Cap i.e., SP Small-Cap and First Ship go up and down completely randomly.

Pair Corralation between SP Small-Cap and First Ship

If you would invest  132,239  in SP Small-Cap 600 on May 16, 2025 and sell it today you would earn a total of  10,110  from holding SP Small-Cap 600 or generate 7.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

SP Small-Cap 600  vs.  First Ship Lease

Pair Trading with SP Small-Cap and First Ship

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

The idea behind SP Small-Cap 600 and First Ship Lease 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.