Correlation Between Dunham Large and Small Cap

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

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

Diversification Opportunities for Dunham Large and Small Cap

0.65

Correlation Coefficient

Dunham Large  Small Cap

Poor diversification

The 3 months correlation between Dunham and Small is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dunham Large Cap and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Dunham Large 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 Dunham Large Cap are associated (or correlated) with 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 Small Cap Value has no effect on the direction of Dunham Large i.e., Dunham Large and Small Cap go up and down completely randomly.

Pair Corralation between Dunham Large and Small Cap

Assuming the 90 days horizon Dunham Large Cap is expected to generate 0.68 times more return on investment than Small Cap. However, Dunham Large Cap is 1.46 times less risky than Small Cap. It trades about -0.13 of its potential returns per unit of risk. Small Cap Value is currently generating about -0.18 per unit of risk. If you would invest  2,124  in Dunham Large Cap on November 28, 2024 and sell it today you would lose (153.00) from holding Dunham Large Cap or give up 7.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Dunham Large Cap  vs.  Small Cap Value

Dunham Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dunham Large 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.

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Dunham Large and Small Cap

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

The idea behind Dunham Large Cap and Small Cap Value 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.