Correlation Between Small Cap and Undiscovered Managers
Can any of the company-specific risk be diversified away by investing in both Small Cap and Undiscovered Managers 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 Undiscovered Managers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Value and Undiscovered Managers Behavioral, you can compare the effects of market volatilities on Small Cap and Undiscovered Managers 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 Undiscovered Managers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Undiscovered Managers.
Diversification Opportunities for Small Cap and Undiscovered Managers
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Undiscovered is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Undiscovered Managers Behavior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Undiscovered Managers 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 Value are associated (or correlated) with Undiscovered Managers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Undiscovered Managers has no effect on the direction of Small Cap i.e., Small Cap and Undiscovered Managers go up and down completely randomly.
Pair Corralation between Small Cap and Undiscovered Managers
Assuming the 90 days horizon Small Cap Value is expected to under-perform the Undiscovered Managers. In addition to that, Small Cap is 1.15 times more volatile than Undiscovered Managers Behavioral. It trades about -0.13 of its total potential returns per unit of risk. Undiscovered Managers Behavioral is currently generating about -0.06 per unit of volatility. If you would invest 8,334 in Undiscovered Managers Behavioral on February 6, 2024 and sell it today you would lose (106.00) from holding Undiscovered Managers Behavioral or give up 1.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. Undiscovered Managers Behavior
Performance |
| Timeline |
| Small Cap Value |
| Undiscovered Managers |
Small Cap and Undiscovered Managers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Undiscovered Managers
The main advantage of trading using opposite Small Cap and Undiscovered Managers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Undiscovered Managers 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 Undiscovered Managers will offset losses from the drop in Undiscovered Managers' long position.| Small Cap vs. Mid Cap Value | Small Cap vs. Diversified Bond Fund | Small Cap vs. Short Term Government Fund | Small Cap vs. Ultra Fund C |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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