Correlation Between Commonwealth Global and Small-cap Value

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

By analyzing existing cross correlation between Commonwealth Global Fund and Small Cap Value Series, you can compare the effects of market volatilities on Commonwealth Global and Small-cap Value 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 Commonwealth Global with a short position of Small-cap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and Small-cap Value.

Diversification Opportunities for Commonwealth Global and Small-cap Value

0.81

Correlation Coefficient

Commonwealth Global  Small-cap Value

Very poor diversification

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

Pair Corralation between Commonwealth Global and Small-cap Value

Assuming the 90 days horizon Commonwealth Global Fund is expected to under-perform the Small-cap Value. But the mutual fund apears to be less risky and, when comparing its historical volatility, Commonwealth Global Fund is 2.11 times less risky than Small-cap Value. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Small Cap Value Series is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,220  in Small Cap Value Series on October 4, 2024 and sell it today you would lose (123.00) from holding Small Cap Value Series or give up 5.54% of portfolio value over 90 days.

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

Commonwealth Global Fund  vs.  Small Cap Value Series

Commonwealth Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commonwealth Global Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Commonwealth Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Series 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.

Pair Trading with Commonwealth Global and Small-cap Value

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

The idea behind Commonwealth Global Fund and Small Cap Value Series 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.