Correlation Between Champlain Small and Small Company

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

By analyzing existing cross correlation between Champlain Small and Small Pany Growth, you can compare the effects of market volatilities on Champlain Small and Small 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 Champlain Small with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Champlain Small and Small Company.

Diversification Opportunities for Champlain Small and Small Company

0.2

Correlation Coefficient

Champlain Small  Small Company

Modest diversification

The 3 months correlation between Champlain and Small is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Champlain Small and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Champlain 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 Champlain Small are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Champlain Small i.e., Champlain Small and Small Company go up and down completely randomly.

Pair Corralation between Champlain Small and Small Company

Assuming the 90 days horizon Champlain Small is expected to under-perform the Small Company. But the mutual fund apears to be less risky and, when comparing its historical volatility, Champlain Small is 1.21 times less risky than Small Company. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Small Pany Growth is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,653  in Small Pany Growth on November 29, 2024 and sell it today you would lose (119.00) from holding Small Pany Growth or give up 7.2% of portfolio value over 90 days.

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

Champlain Small  vs.  Small Pany Growth

Champlain Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Champlain Small 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.

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Champlain Small and Small Company

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

The idea behind Champlain Small and Small Pany Growth 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.