Correlation Between Brandes Small and Leader Short

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

By analyzing existing cross correlation between Brandes Small Cap and Leader Short Term Bond, you can compare the effects of market volatilities on Brandes Small and Leader Short 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 Brandes Small with a short position of Leader Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brandes Small and Leader Short.

Diversification Opportunities for Brandes Small and Leader Short

0.61

Correlation Coefficient

Brandes Small  Leader Short

Poor diversification

The 3 months correlation between Brandes and Leader is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Brandes Small Cap and Leader Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Short Term and Brandes Small 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 Brandes Small Cap are associated (or correlated) with Leader Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leader Short Term has no effect on the direction of Brandes Small i.e., Brandes Small and Leader Short go up and down completely randomly.

Pair Corralation between Brandes Small and Leader Short

Assuming the 90 days horizon Brandes Small Cap is expected to generate 4.92 times more return on investment than Leader Short. However, Brandes Small is 4.92 times more volatile than Leader Short Term Bond. It trades about 0.22 of its potential returns per unit of risk. Leader Short Term Bond is currently generating about 0.4 per unit of risk. If you would invest  1,571  in Brandes Small Cap on October 22, 2024 and sell it today you would earn a total of  60.00  from holding Brandes Small Cap or generate 3.82% return on investment over 90 days.

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

Brandes Small Cap  vs.  Leader Short Term Bond

Brandes Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brandes Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Brandes Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Leader Short Term

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Leader Short Term Bond are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Leader Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brandes Small and Leader Short

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

The idea behind Brandes Small Cap and Leader Short Term Bond 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.