Correlation Between Small Company and Value Line

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

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

Diversification Opportunities for Small Company and Value Line

0.73

Correlation Coefficient

Small Company  Value Line

Poor diversification

The 3 months correlation between Small and Value is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Value and Value Line Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Premier and Small Company 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 Small Pany Value are associated (or correlated) with Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Premier has no effect on the direction of Small Company i.e., Small Company and Value Line go up and down completely randomly.

Pair Corralation between Small Company and Value Line

Assuming the 90 days horizon Small Pany Value is expected to under-perform the Value Line. In addition to that, Small Company is 1.37 times more volatile than Value Line Premier. It trades about -0.11 of its total potential returns per unit of risk. Value Line Premier is currently generating about -0.01 per unit of volatility. If you would invest  3,531  in Value Line Premier on December 26, 2024 and sell it today you would lose (20.00) from holding Value Line Premier or give up 0.57% of portfolio value over 90 days.

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

Small Pany Value  vs.  Value Line Premier

Small Pany Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Value 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.

Value Line Premier

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Small Company and Value Line

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

The idea behind Small Pany Value and Value Line Premier 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.