Correlation Between Small Cap and Value Fund

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

By analyzing existing cross correlation between Small Cap Stock and Value Fund Value, you can compare the effects of market volatilities on Small Cap and Value Fund 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 Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Value Fund.

Diversification Opportunities for Small Cap and Value Fund

0.99

Correlation Coefficient

Small Cap  Value Fund

No risk reduction

The 3 months correlation between Small and Value is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Value Fund Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund Value 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 Stock are associated (or correlated) with Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund Value has no effect on the direction of Small Cap i.e., Small Cap and Value Fund go up and down completely randomly.

Pair Corralation between Small Cap and Value Fund

Assuming the 90 days horizon Small Cap Stock is expected to generate 1.5 times more return on investment than Value Fund. However, Small Cap is 1.5 times more volatile than Value Fund Value. It trades about 0.2 of its potential returns per unit of risk. Value Fund Value is currently generating about 0.19 per unit of risk. If you would invest  1,190  in Small Cap Stock on April 30, 2025 and sell it today you would earn a total of  177.00  from holding Small Cap Stock or generate 14.87% return on investment over 90 days.

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

Small Cap Stock  vs.  Value Fund Value

Small Cap Stock

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Value Fund Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund Value are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Value Fund may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Small Cap and Value Fund

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

The idea behind Small Cap Stock and Value Fund Value 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.