Correlation Between Small-cap Value and Valic Company

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

Diversification Opportunities for Small-cap Value and Valic Company

0.81

Correlation Coefficient

Small-cap Value  Valic Company

Very poor diversification

The 3 months correlation between Small-cap and Valic is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Valic Company I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valic Company I 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 Valic Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valic Company I has no effect on the direction of Small-cap Value i.e., Small-cap Value and Valic Company go up and down completely randomly.

Pair Corralation between Small-cap Value and Valic Company

Assuming the 90 days horizon Small Cap Value Fund is expected to under-perform the Valic Company. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Value Fund is 1.04 times less risky than Valic Company. The mutual fund trades about -0.44 of its potential returns per unit of risk. The Valic Company I is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest  1,353  in Valic Company I on October 13, 2024 and sell it today you would lose (78.00) from holding Valic Company I or give up 5.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Small Cap Value Fund  vs.  Valic Company I

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.

Valic Company I

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valic Company I has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Valic Company 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 Valic Company

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

The idea behind Small Cap Value Fund and Valic Company I 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..