Correlation Between Small Cap and Asset Allocation
Can any of the company-specific risk be diversified away by investing in both Small Cap and Asset Allocation 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 Asset Allocation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Special and Asset Allocation Fund, you can compare the effects of market volatilities on Small Cap and Asset Allocation 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 Asset Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Asset Allocation.
Diversification Opportunities for Small Cap and Asset Allocation
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Asset is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Special and Asset Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asset Allocation 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 Special are associated (or correlated) with Asset Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asset Allocation has no effect on the direction of Small Cap i.e., Small Cap and Asset Allocation go up and down completely randomly.
Pair Corralation between Small Cap and Asset Allocation
Assuming the 90 days horizon Small Cap Special is expected to generate 2.52 times more return on investment than Asset Allocation. However, Small Cap is 2.52 times more volatile than Asset Allocation Fund. It trades about 0.13 of its potential returns per unit of risk. Asset Allocation Fund is currently generating about 0.33 per unit of risk. If you would invest 1,003 in Small Cap Special on April 25, 2025 and sell it today you would earn a total of 100.00 from holding Small Cap Special or generate 9.97% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Small Cap Special vs. Asset Allocation Fund
Performance |
Timeline |
Small Cap Special |
Asset Allocation |
Small Cap and Asset Allocation Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Asset Allocation
The main advantage of trading using opposite Small Cap and Asset Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Asset Allocation 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 Asset Allocation will offset losses from the drop in Asset Allocation's long position.Small Cap vs. Leader Short Term Bond | Small Cap vs. Cmg Ultra Short | Small Cap vs. Aqr Long Short Equity | Small Cap vs. American Funds Tax Exempt |
Asset Allocation vs. Locorr Dynamic Equity | Asset Allocation vs. Qs Global Equity | Asset Allocation vs. Monteagle Enhanced Equity | Asset Allocation vs. Goldman Sachs Equity |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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