Correlation Between Dream Finders and Small Cap

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

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

Diversification Opportunities for Dream Finders and Small Cap

-0.6

Correlation Coefficient

Dream Finders  Small Cap

Excellent diversification

The 3 months correlation between Dream and Small is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Dream Finders Homes and Small Cap Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Premium and Dream Finders 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 Dream Finders Homes 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 Premium has no effect on the direction of Dream Finders i.e., Dream Finders and Small Cap go up and down completely randomly.

Pair Corralation between Dream Finders and Small Cap

Considering the 90-day investment horizon Dream Finders Homes is expected to generate 7.06 times more return on investment than Small Cap. However, Dream Finders is 7.06 times more volatile than Small Cap Premium. It trades about 0.05 of its potential returns per unit of risk. Small Cap Premium is currently generating about 0.08 per unit of risk. If you would invest  1,244  in Dream Finders Homes on October 6, 2024 and sell it today you would earn a total of  1,074  from holding Dream Finders Homes or generate 86.33% return on investment over 90 days.

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

Dream Finders Homes  vs.  Small Cap Premium

Dream Finders Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dream Finders Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Small Cap Premium

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dream Finders and Small Cap

The main advantage of trading using opposite Dream Finders and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dream Finders 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 Dream Finders Homes and Small Cap Premium 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.