Correlation Between Applied Finance and Sp Smallcap

Can any of the company-specific risk be diversified away by investing in both Applied Finance 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 Applied Finance and Sp Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Finance Explorer and Sp Smallcap 600, you can compare the effects of market volatilities on Applied Finance 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 Applied Finance with a short position of Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and Sp Smallcap.

Diversification Opportunities for Applied Finance and Sp Smallcap

0.78

Correlation Coefficient

Applied Finance  Sp Smallcap

Poor diversification

The 3 months correlation between Applied and RYSVX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 and Applied Finance 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 Applied Finance Explorer 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 600 has no effect on the direction of Applied Finance i.e., Applied Finance and Sp Smallcap go up and down completely randomly.

Pair Corralation between Applied Finance and Sp Smallcap

Assuming the 90 days horizon Applied Finance Explorer is expected to under-perform the Sp Smallcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Applied Finance Explorer is 1.15 times less risky than Sp Smallcap. The mutual fund trades about -0.55 of its potential returns per unit of risk. The Sp Smallcap 600 is currently generating about -0.3 of returns per unit of risk over similar time horizon. If you would invest  22,146  in Sp Smallcap 600 on October 1, 2024 and sell it today you would lose (1,511) from holding Sp Smallcap 600 or give up 6.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Applied Finance Explorer  vs.  Sp Smallcap 600

Applied Finance Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Finance Explorer has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Applied Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sp Smallcap 600

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sp Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Finance and Sp Smallcap

The main advantage of trading using opposite Applied Finance and Sp Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Finance 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 Applied Finance Explorer and Sp Smallcap 600 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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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.