Correlation Between Ariel Fund and Snow Capital

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

By analyzing existing cross correlation between Ariel Fund Investor and Snow Capital Opportunity, you can compare the effects of market volatilities on Ariel Fund and Snow Capital 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 Ariel Fund with a short position of Snow Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ariel Fund and Snow Capital.

Diversification Opportunities for Ariel Fund and Snow Capital

0.76

Correlation Coefficient

Ariel Fund  Snow Capital

Poor diversification

The 3 months correlation between Ariel and Snow is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ariel Fund Investor and Snow Capital Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snow Capital Opportunity and Ariel Fund 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 Ariel Fund Investor are associated (or correlated) with Snow Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snow Capital Opportunity has no effect on the direction of Ariel Fund i.e., Ariel Fund and Snow Capital go up and down completely randomly.

Pair Corralation between Ariel Fund and Snow Capital

Assuming the 90 days horizon Ariel Fund Investor is expected to generate 1.49 times more return on investment than Snow Capital. However, Ariel Fund is 1.49 times more volatile than Snow Capital Opportunity. It trades about 0.04 of its potential returns per unit of risk. Snow Capital Opportunity is currently generating about -0.03 per unit of risk. If you would invest  6,780  in Ariel Fund Investor on September 23, 2024 and sell it today you would earn a total of  432.00  from holding Ariel Fund Investor or generate 6.37% return on investment over 90 days.

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

Ariel Fund Investor  vs.  Snow Capital Opportunity

Ariel Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Snow Capital Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ariel Fund and Snow Capital

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

The idea behind Ariel Fund Investor and Snow Capital Opportunity 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.