Correlation Between Alger Small and Alger Smallcap

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

By analyzing existing cross correlation between Alger Small Cap and Alger Smallcap Growth, you can compare the effects of market volatilities on Alger Small and Alger 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 Alger Small with a short position of Alger Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alger Small and Alger Smallcap.

Diversification Opportunities for Alger Small and Alger Smallcap

0.74

Correlation Coefficient

Alger Small  Alger Smallcap

Poor diversification

The 3 months correlation between Alger and Alger is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Alger Small Cap and Alger Smallcap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Smallcap Growth and Alger Small 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 Alger Small Cap are associated (or correlated) with Alger Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Smallcap Growth has no effect on the direction of Alger Small i.e., Alger Small and Alger Smallcap go up and down completely randomly.

Pair Corralation between Alger Small and Alger Smallcap

Assuming the 90 days horizon Alger Small Cap is expected to generate 1.18 times more return on investment than Alger Smallcap. However, Alger Small is 1.18 times more volatile than Alger Smallcap Growth. It trades about 0.22 of its potential returns per unit of risk. Alger Smallcap Growth is currently generating about 0.17 per unit of risk. If you would invest  1,781  in Alger Small Cap on September 12, 2024 and sell it today you would earn a total of  372.00  from holding Alger Small Cap or generate 20.89% return on investment over 90 days.

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

Alger Small Cap  vs.  Alger Smallcap Growth

Alger Small Cap

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Alger Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak forward indicators, Alger Small showed solid returns over the last few months and may actually be approaching a breakup point.

Alger Smallcap Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Smallcap Growth are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Smallcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alger Small and Alger Smallcap

The main advantage of trading using opposite Alger Small and Alger Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alger Small position performs unexpectedly, Alger 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 Alger Smallcap will offset losses from the drop in Alger Smallcap's long position.

The idea behind Alger Small Cap and Alger Smallcap Growth 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.