Correlation Between Small Cap and Dana Large

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

By analyzing existing cross correlation between Small Cap Value Fund and Dana Large Cap, you can compare the effects of market volatilities on Small Cap and Dana Large 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 Dana Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Dana Large.

Diversification Opportunities for Small Cap and Dana Large

0.65

Correlation Coefficient

Small Cap  Dana Large

Poor diversification

The 3 months correlation between Small and Dana is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Dana Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Large Cap 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 Fund are associated (or correlated) with Dana Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Large Cap has no effect on the direction of Small Cap i.e., Small Cap and Dana Large go up and down completely randomly.

Pair Corralation between Small Cap and Dana Large

Assuming the 90 days horizon Small Cap Value Fund is expected to under-perform the Dana Large. In addition to that, Small Cap is 2.02 times more volatile than Dana Large Cap. It trades about -0.39 of its total potential returns per unit of risk. Dana Large Cap is currently generating about -0.05 per unit of volatility. If you would invest  2,680  in Dana Large Cap on September 22, 2024 and sell it today you would lose (26.00) from holding Dana Large Cap or give up 0.97% of portfolio value over 90 days.

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

Small Cap Value Fund  vs.  Dana Large Cap

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 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.

Dana Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Dana Large 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 Dana Large

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

The idea behind Small Cap Value Fund and Dana Large Cap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.