Correlation Between Real Assets and Small Company
Can any of the company-specific risk be diversified away by investing in both Real Assets and Small Company 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 Real Assets and Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Assets Portfolio and Small Pany Growth, you can compare the effects of market volatilities on Real Assets and Small Company 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 Real Assets with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Assets and Small Company.
Diversification Opportunities for Real Assets and Small Company
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Real and Small is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Real Assets Portfolio and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Real Assets 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 Real Assets Portfolio are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Real Assets i.e., Real Assets and Small Company go up and down completely randomly.
Pair Corralation between Real Assets and Small Company
Assuming the 90 days horizon Real Assets is expected to generate 5.21 times less return on investment than Small Company. But when comparing it to its historical volatility, Real Assets Portfolio is 5.2 times less risky than Small Company. It trades about 0.12 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 842.00 in Small Pany Growth on May 31, 2025 and sell it today you would earn a total of 90.00 from holding Small Pany Growth or generate 10.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 73.02% |
| Values | Daily Returns |
Real Assets Portfolio vs. Small Pany Growth
Performance |
| Timeline |
| Real Assets Portfolio |
Risk-Adjusted Performance
Fair
Weak | Strong |
| Small Pany Growth |
Real Assets and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Assets and Small Company
The main advantage of trading using opposite Real Assets and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Assets position performs unexpectedly, Small Company 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 Company will offset losses from the drop in Small Company's long position.| Real Assets vs. Rationalpier 88 Convertible | Real Assets vs. Columbia Convertible Securities | Real Assets vs. Fidelity Sai Convertible | Real Assets vs. Virtus Convertible |
| Small Company vs. Astor Star Fund | Small Company vs. Shelton Funds | Small Company vs. Small Cap Stock | Small Company vs. Growth Allocation Fund |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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