Correlation Between Nuveen Small and Nuveen Preferred

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

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

Diversification Opportunities for Nuveen Small and Nuveen Preferred

0.27

Correlation Coefficient

Nuveen Small  Nuveen Preferred

Modest diversification

The 3 months correlation between Nuveen and Nuveen is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen Small Cap and Nuveen Preferred Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Preferred Sec and Nuveen Small 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 Nuveen Small Cap are associated (or correlated) with Nuveen Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Preferred Sec has no effect on the direction of Nuveen Small i.e., Nuveen Small and Nuveen Preferred go up and down completely randomly.

Pair Corralation between Nuveen Small and Nuveen Preferred

Assuming the 90 days horizon Nuveen Small Cap is expected to generate 9.38 times more return on investment than Nuveen Preferred. However, Nuveen Small is 9.38 times more volatile than Nuveen Preferred Securities. It trades about 0.14 of its potential returns per unit of risk. Nuveen Preferred Securities is currently generating about 0.1 per unit of risk. If you would invest  1,045  in Nuveen Small Cap on August 30, 2024 and sell it today you would earn a total of  120.00  from holding Nuveen Small Cap or generate 11.48% return on investment over 90 days.

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

Nuveen Small Cap  vs.  Nuveen Preferred Securities

Nuveen Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nuveen Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Nuveen Preferred Sec

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Preferred Securities are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Nuveen Preferred is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nuveen Small and Nuveen Preferred

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

The idea behind Nuveen Small Cap and Nuveen Preferred Securities 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.