Correlation Between Small Cap and Dunham Real

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

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

Diversification Opportunities for Small Cap and Dunham Real

0.89

Correlation Coefficient

Small Cap  Dunham Real

Very poor diversification

The 3 months correlation between Small and Dunham is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Dunham Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dunham Real Estate and Small Cap 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 Small Cap Value are associated (or correlated) with Dunham Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dunham Real Estate has no effect on the direction of Small Cap i.e., Small Cap and Dunham Real go up and down completely randomly.

Pair Corralation between Small Cap and Dunham Real

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Dunham Real. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Value is 1.04 times less risky than Dunham Real. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Dunham Real Estate is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,383  in Dunham Real Estate on December 20, 2024 and sell it today you would lose (23.00) from holding Dunham Real Estate or give up 1.66% of portfolio value over 90 days.

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

Small Cap Value  vs.  Dunham Real Estate

Small Cap Value

Risk-Adjusted Performance

Very Weak

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

Dunham Real Estate

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Small Cap and Dunham Real

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

The idea behind Small Cap Value and Dunham Real Estate 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 Stocks Directory module to find actively traded stocks across global markets.