Correlation Between Small Cap and Valic Company

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

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

Diversification Opportunities for Small Cap and Valic Company

0.71

Correlation Coefficient

Small Cap  Valic Company

Poor diversification

The 3 months correlation between Small and Valic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Index and Valic Company I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valic Company I 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 Index are associated (or correlated) with Valic Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valic Company I has no effect on the direction of Small Cap i.e., Small Cap and Valic Company go up and down completely randomly.

Pair Corralation between Small Cap and Valic Company

Assuming the 90 days horizon Small Cap Index is expected to generate 4.14 times more return on investment than Valic Company. However, Small Cap is 4.14 times more volatile than Valic Company I. It trades about 0.23 of its potential returns per unit of risk. Valic Company I is currently generating about 0.08 per unit of risk. If you would invest  1,378  in Small Cap Index on April 25, 2025 and sell it today you would earn a total of  232.00  from holding Small Cap Index or generate 16.84% return on investment over 90 days.

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

Small Cap Index  vs.  Valic Company I

Small Cap Index

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Index are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Valic Company I

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Valic Company I are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Valic Company 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 Cap and Valic Company

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

The idea behind Small Cap Index and Valic Company I 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.