Correlation Between Small-cap Value and Dreyfus Gnma

Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Dreyfus Gnma 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 Value and Dreyfus Gnma 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 Dreyfus Gnma Fund, you can compare the effects of market volatilities on Small-cap Value and Dreyfus Gnma 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 Value with a short position of Dreyfus Gnma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Dreyfus Gnma.

Diversification Opportunities for Small-cap Value and Dreyfus Gnma

0.68

Correlation Coefficient

Small-cap Value  Dreyfus Gnma

Poor diversification

The 3 months correlation between Small-cap and Dreyfus is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Dreyfus Gnma Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Gnma and Small-cap Value 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 Dreyfus Gnma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Gnma has no effect on the direction of Small-cap Value i.e., Small-cap Value and Dreyfus Gnma go up and down completely randomly.

Pair Corralation between Small-cap Value and Dreyfus Gnma

Assuming the 90 days horizon Small Cap Value Fund is expected to under-perform the Dreyfus Gnma. In addition to that, Small-cap Value is 5.22 times more volatile than Dreyfus Gnma Fund. It trades about -0.03 of its total potential returns per unit of risk. Dreyfus Gnma Fund is currently generating about -0.02 per unit of volatility. If you would invest  1,265  in Dreyfus Gnma Fund on October 26, 2024 and sell it today you would lose (4.00) from holding Dreyfus Gnma Fund or give up 0.32% 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.  Dreyfus Gnma Fund

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 Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dreyfus Gnma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dreyfus Gnma Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Dreyfus Gnma 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 Value and Dreyfus Gnma

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

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