Correlation Between Dunham Real and Smallcap

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

By analyzing existing cross correlation between Dunham Real Estate and Smallcap Sp 600, you can compare the effects of market volatilities on Dunham Real and Smallcap 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 Real with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dunham Real and Smallcap.

Diversification Opportunities for Dunham Real and Smallcap

-0.53

Correlation Coefficient

Dunham Real  Smallcap

Excellent diversification

The 3 months correlation between Dunham and Smallcap is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Dunham Real Estate and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Dunham Real 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 Real Estate are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Dunham Real i.e., Dunham Real and Smallcap go up and down completely randomly.

Pair Corralation between Dunham Real and Smallcap

Assuming the 90 days horizon Dunham Real Estate is expected to under-perform the Smallcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dunham Real Estate is 1.53 times less risky than Smallcap. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Smallcap Sp 600 is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,703  in Smallcap Sp 600 on October 24, 2024 and sell it today you would earn a total of  232.00  from holding Smallcap Sp 600 or generate 8.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	40.68%
Values	Daily Returns

Dunham Real Estate  vs.  Smallcap Sp 600

Dunham Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Smallcap Sp 600

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Smallcap Sp 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Smallcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dunham Real and Smallcap

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

The idea behind Dunham Real Estate and Smallcap Sp 600 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.