Correlation Between Intermediate Government and Sp Smallcap
Can any of the company-specific risk be diversified away by investing in both Intermediate Government and Sp Smallcap 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 Intermediate Government and Sp Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Government Bond and Sp Smallcap Index, you can compare the effects of market volatilities on Intermediate Government and Sp Smallcap 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 Intermediate Government with a short position of Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Government and Sp Smallcap.
Diversification Opportunities for Intermediate Government and Sp Smallcap
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Intermediate and SMLKX is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Government Bond and Sp Smallcap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap Index and Intermediate Government 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 Intermediate Government Bond are associated (or correlated) with Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap Index has no effect on the direction of Intermediate Government i.e., Intermediate Government and Sp Smallcap go up and down completely randomly.
Pair Corralation between Intermediate Government and Sp Smallcap
Assuming the 90 days horizon Intermediate Government Bond is not expected to generate positive returns. However, Intermediate Government Bond is 10.5 times less risky than Sp Smallcap. It waists most of its returns potential to compensate for thr risk taken. Sp Smallcap is generating about 0.28 per unit of risk. If you would invest 1,938 in Sp Smallcap Index on April 16, 2025 and sell it today you would earn a total of 102.00 from holding Sp Smallcap Index or generate 5.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Government Bond vs. Sp Smallcap Index
Performance |
| Timeline |
| Intermediate Government |
| Sp Smallcap Index |
Intermediate Government and Sp Smallcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate Government and Sp Smallcap
The main advantage of trading using opposite Intermediate Government and Sp Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Government position performs unexpectedly, Sp Smallcap 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 Sp Smallcap will offset losses from the drop in Sp Smallcap's long position.The idea behind Intermediate Government Bond and Sp Smallcap Index 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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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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