Correlation Between Small Cap and Income Fund
Can any of the company-specific risk be diversified away by investing in both Small Cap and Income 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 Income 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 Income Fund Income, you can compare the effects of market volatilities on Small Cap and Income 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 Income Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Income Fund.
Diversification Opportunities for Small Cap and Income Fund
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and Income is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Income Fund Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund Income 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 Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund Income has no effect on the direction of Small Cap i.e., Small Cap and Income Fund go up and down completely randomly.
Pair Corralation between Small Cap and Income Fund
Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Income Fund. In addition to that, Small Cap is 3.09 times more volatile than Income Fund Income. It trades about -0.08 of its total potential returns per unit of risk. Income Fund Income is currently generating about 0.0 per unit of volatility. If you would invest 1,123 in Income Fund Income on February 5, 2024 and sell it today you would earn a total of 0.00 from holding Income Fund Income or generate 0.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Small Cap Stock vs. Income Fund Income
Performance |
Timeline |
Small Cap Stock |
Income Fund Income |
Small Cap and Income Fund Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Income Fund
The main advantage of trading using opposite Small Cap and Income Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Income 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 Income Fund will offset losses from the drop in Income Fund's long position.Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index |
Income Fund vs. Victory Tax Exempt Fund | Income Fund vs. Victory Strategic Allocation | Income Fund vs. Victory Integrity Discovery | Income Fund vs. Victory Integrity Discovery |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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