Correlation Between Driehaus Micro and Meridian Small

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

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

Diversification Opportunities for Driehaus Micro and Meridian Small

0.78

Correlation Coefficient

Driehaus Micro  Meridian Small

Poor diversification

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

Pair Corralation between Driehaus Micro and Meridian Small

Assuming the 90 days horizon Driehaus Micro Cap is expected to under-perform the Meridian Small. In addition to that, Driehaus Micro is 1.68 times more volatile than Meridian Small Cap. It trades about -0.15 of its total potential returns per unit of risk. Meridian Small Cap is currently generating about -0.17 per unit of volatility. If you would invest  1,147  in Meridian Small Cap on December 30, 2024 and sell it today you would lose (136.00) from holding Meridian Small Cap or give up 11.86% of portfolio value over 90 days.

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

Driehaus Micro Cap  vs.  Meridian Small Cap

Driehaus Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Driehaus Micro Cap 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Meridian Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meridian Small Cap 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 Driehaus Micro and Meridian Small

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

The idea behind Driehaus Micro Cap and Meridian Small Cap 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.