Correlation Between Small-cap Value and Spectrum Fund

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

Diversification Opportunities for Small-cap Value and Spectrum Fund

0.92

Correlation Coefficient

Small-cap Value  Spectrum Fund

Almost no diversification

The 3 months correlation between Small-cap and Spectrum is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Spectrum Fund Adviser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Fund Adviser 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 Spectrum Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Fund Adviser has no effect on the direction of Small-cap Value i.e., Small-cap Value and Spectrum Fund go up and down completely randomly.

Pair Corralation between Small-cap Value and Spectrum Fund

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 1.2 times more return on investment than Spectrum Fund. However, Small-cap Value is 1.2 times more volatile than Spectrum Fund Adviser. It trades about -0.03 of its potential returns per unit of risk. Spectrum Fund Adviser is currently generating about -0.05 per unit of risk. If you would invest  3,977  in Small Cap Value Fund on October 27, 2024 and sell it today you would lose (157.00) from holding Small Cap Value Fund or give up 3.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Small Cap Value Fund  vs.  Spectrum Fund Adviser

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.

Spectrum Fund Adviser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectrum Fund Adviser has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Spectrum Fund 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 Spectrum Fund

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

The idea behind Small Cap Value Fund and Spectrum Fund Adviser 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.

Check out your portfolio center.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .