Correlation Between Small Capitalization and Moderately Conservative

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

By analyzing existing cross correlation between Small Capitalization Portfolio and Moderately Servative Balanced, you can compare the effects of market volatilities on Small Capitalization and Moderately Conservative 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 Capitalization with a short position of Moderately Conservative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Moderately Conservative.

Diversification Opportunities for Small Capitalization and Moderately Conservative

0.76

Correlation Coefficient

Small Capitalization  Moderately Conservative

Poor diversification

The 3 months correlation between Small and Moderately is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Moderately Servative Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Conservative and Small Capitalization 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 Capitalization Portfolio are associated (or correlated) with Moderately Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Conservative has no effect on the direction of Small Capitalization i.e., Small Capitalization and Moderately Conservative go up and down completely randomly.

Pair Corralation between Small Capitalization and Moderately Conservative

Assuming the 90 days horizon Small Capitalization Portfolio is expected to generate 2.52 times more return on investment than Moderately Conservative. However, Small Capitalization is 2.52 times more volatile than Moderately Servative Balanced. It trades about 0.14 of its potential returns per unit of risk. Moderately Servative Balanced is currently generating about 0.12 per unit of risk. If you would invest  690.00  in Small Capitalization Portfolio on July 1, 2025 and sell it today you would earn a total of  64.00  from holding Small Capitalization Portfolio or generate 9.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Small Capitalization Portfolio  vs.  Moderately Servative Balanced

Small Capitalization

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Capitalization Portfolio are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Capitalization may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Moderately Conservative

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Moderately Conservative 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 Capitalization and Moderately Conservative

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

The idea behind Small Capitalization Portfolio and Moderately Servative Balanced 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.