Correlation Between Technology Communications and Small Cap

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

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

Diversification Opportunities for Technology Communications and Small Cap

0.88

Correlation Coefficient

Technology Communications  Small Cap

Very poor diversification

The 3 months correlation between Technology and Small is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Technology Munications Portfol and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Technology Communications 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 Technology Munications Portfolio 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 Core has no effect on the direction of Technology Communications i.e., Technology Communications and Small Cap go up and down completely randomly.

Pair Corralation between Technology Communications and Small Cap

Assuming the 90 days horizon Technology Munications Portfolio is expected to generate 0.75 times more return on investment than Small Cap. However, Technology Munications Portfolio is 1.33 times less risky than Small Cap. It trades about 0.21 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.1 per unit of risk. If you would invest  2,080  in Technology Munications Portfolio on May 18, 2025 and sell it today you would earn a total of  243.00  from holding Technology Munications Portfolio or generate 11.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Technology Munications Portfol  vs.  Small Cap Core

Technology Communications

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Munications Portfolio are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Technology Communications may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Small Cap Core

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Technology Communications and Small Cap

The main advantage of trading using opposite Technology Communications and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Communications 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 Technology Munications Portfolio and Small Cap Core 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.