Correlation Between Small-cap Value and Wasatch Micro

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

Diversification Opportunities for Small-cap Value and Wasatch Micro

0.96

Correlation Coefficient

Small-cap Value  Wasatch Micro

Almost no diversification

The 3 months correlation between Small-cap and Wasatch is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Wasatch Micro Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Micro Cap 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 Wasatch Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Micro Cap has no effect on the direction of Small-cap Value i.e., Small-cap Value and Wasatch Micro go up and down completely randomly.

Pair Corralation between Small-cap Value and Wasatch Micro

Assuming the 90 days horizon Small Cap Value Fund is expected to under-perform the Wasatch Micro. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Value Fund is 1.13 times less risky than Wasatch Micro. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Wasatch Micro Cap is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  419.00  in Wasatch Micro Cap on December 22, 2024 and sell it today you would lose (33.00) from holding Wasatch Micro Cap or give up 7.88% of portfolio value over 90 days.

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

Small Cap Value Fund  vs.  Wasatch Micro Cap

Small Cap Value

Risk-Adjusted Performance

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.

Wasatch Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wasatch Micro Cap 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.

Pair Trading with Small-cap Value and Wasatch Micro

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

The idea behind Small Cap Value Fund and Wasatch Micro 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.