Correlation Between Omni Small and American Funds

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

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

Diversification Opportunities for Omni Small and American Funds

0.74

Correlation Coefficient

Omni Small  American Funds

Poor diversification

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

Pair Corralation between Omni Small and American Funds

Assuming the 90 days horizon Omni Small Cap Value is expected to generate 2.64 times more return on investment than American Funds. However, Omni Small is 2.64 times more volatile than American Funds College. It trades about 0.13 of its potential returns per unit of risk. American Funds College is currently generating about 0.16 per unit of risk. If you would invest  1,900  in Omni Small Cap Value on September 12, 2024 and sell it today you would earn a total of  220.00  from holding Omni Small Cap Value or generate 11.58% return on investment over 90 days.

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

Omni Small Cap Value  vs.  American Funds College

Omni Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Omni Small Cap Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Omni Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Funds College

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds College are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Omni Small and American Funds

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

The idea behind Omni Small Cap Value and American Funds College 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.