Correlation Between Artisan Thematic and Small Cap

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

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

Diversification Opportunities for Artisan Thematic and Small Cap

0.85

Correlation Coefficient

Artisan Thematic  Small Cap

Very poor diversification

The 3 months correlation between Artisan and Small is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Artisan Thematic Fund and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Artisan Thematic 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 Artisan Thematic Fund are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Artisan Thematic i.e., Artisan Thematic and Small Cap go up and down completely randomly.

Pair Corralation between Artisan Thematic and Small Cap

Assuming the 90 days horizon Artisan Thematic Fund is expected to generate 1.22 times more return on investment than Small Cap. However, Artisan Thematic is 1.22 times more volatile than Small Cap Stock. It trades about -0.03 of its potential returns per unit of risk. Small Cap Stock is currently generating about -0.13 per unit of risk. If you would invest  2,184  in Artisan Thematic Fund on December 29, 2024 and sell it today you would lose (59.00) from holding Artisan Thematic Fund or give up 2.7% of portfolio value over 90 days.

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

Artisan Thematic Fund  vs.  Small Cap Stock

Artisan Thematic

Risk-Adjusted Performance

Very Weak

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

Small Cap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Artisan Thematic and Small Cap

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

The idea behind Artisan Thematic Fund and Small Cap Stock 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.