Correlation Between Zacks All-cap and Zacks Small-cap

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

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

Diversification Opportunities for Zacks All-cap and Zacks Small-cap

0.78

Correlation Coefficient

Zacks All-cap  Zacks Small-cap

Poor diversification

The 3 months correlation between Zacks and Zacks is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Zacks All Cap Core and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small Cap and Zacks All-cap 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 Zacks All Cap Core are associated (or correlated) with Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Zacks All-cap i.e., Zacks All-cap and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Zacks All-cap and Zacks Small-cap

Assuming the 90 days horizon Zacks All Cap Core is expected to generate 0.8 times more return on investment than Zacks Small-cap. However, Zacks All Cap Core is 1.25 times less risky than Zacks Small-cap. It trades about -0.05 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about -0.08 per unit of risk. If you would invest  2,617  in Zacks All Cap Core on December 28, 2024 and sell it today you would lose (79.00) from holding Zacks All Cap Core or give up 3.02% of portfolio value over 90 days.

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

Zacks All Cap Core  vs.  Zacks Small Cap E

Zacks All Cap

Risk-Adjusted Performance

Very Weak

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

Zacks Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zacks Small Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's 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 Zacks All-cap and Zacks Small-cap

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

The idea behind Zacks All Cap Core and Zacks Small Cap E 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..