Correlation Between Aggressive Investors and Small Cap

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

By analyzing existing cross correlation between Aggressive Investors 1 and Small Cap Value Fund, you can compare the effects of market volatilities on Aggressive Investors 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 Aggressive Investors with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Investors and Small Cap.

Diversification Opportunities for Aggressive Investors and Small Cap

0.77

Correlation Coefficient

Aggressive Investors  Small Cap

Poor diversification

The 3 months correlation between Aggressive and Small is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Investors 1 and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Aggressive Investors 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 Aggressive Investors 1 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 Value has no effect on the direction of Aggressive Investors i.e., Aggressive Investors and Small Cap go up and down completely randomly.

Pair Corralation between Aggressive Investors and Small Cap

Assuming the 90 days horizon Aggressive Investors 1 is expected to generate 0.54 times more return on investment than Small Cap. However, Aggressive Investors 1 is 1.84 times less risky than Small Cap. It trades about -0.07 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about -0.19 per unit of risk. If you would invest  10,106  in Aggressive Investors 1 on September 18, 2024 and sell it today you would lose (134.00) from holding Aggressive Investors 1 or give up 1.33% of portfolio value over 90 days.

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

Aggressive Investors 1  vs.  Small Cap Value Fund

Aggressive Investors

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aggressive Investors and Small Cap

The main advantage of trading using opposite Aggressive Investors and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aggressive Investors 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 Aggressive Investors 1 and Small Cap Value Fund 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 Global Correlations module to find global opportunities by holding instruments from different markets.