Correlation Between Mid Cap and Small Cap
Can any of the company-specific risk be diversified away by investing in both Mid Cap 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 Mid Cap and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Strategic and Small Cap Special, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Small Cap.
Diversification Opportunities for Mid Cap and Small Cap
Almost no diversification
The 3 months correlation between Mid and Small is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Strategic and Small Cap Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Special and Mid 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 Mid Cap Strategic 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 Special has no effect on the direction of Mid Cap i.e., Mid Cap and Small Cap go up and down completely randomly.
Pair Corralation between Mid Cap and Small Cap
Assuming the 90 days horizon Mid Cap is expected to generate 1.58 times less return on investment than Small Cap. But when comparing it to its historical volatility, Mid Cap Strategic is 1.49 times less risky than Small Cap. It trades about 0.24 of its potential returns per unit of risk. Small Cap Special is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,035 in Small Cap Special on April 16, 2025 and sell it today you would earn a total of 56.00 from holding Small Cap Special or generate 5.41% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Mid Cap Strategic vs. Small Cap Special
Performance |
Timeline |
Mid Cap Strategic |
Small Cap Special |
Mid Cap and Small Cap Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Mid Cap and Small Cap
The main advantage of trading using opposite Mid Cap and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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.Mid Cap vs. Fidelity Sai Convertible | Mid Cap vs. Gabelli Convertible And | Mid Cap vs. Absolute Convertible Arbitrage | Mid Cap vs. Lord Abbett Convertible |
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Check out your portfolio center.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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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