Correlation Between Fam Small and Fam Equity

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

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

Diversification Opportunities for Fam Small and Fam Equity

0.86

Correlation Coefficient

Fam Small  Fam Equity

Very poor diversification

The 3 months correlation between Fam and Fam is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Fam Small Cap and Fam Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Equity Income and Fam 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 Fam Small Cap are associated (or correlated) with Fam Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Equity Income has no effect on the direction of Fam Small i.e., Fam Small and Fam Equity go up and down completely randomly.

Pair Corralation between Fam Small and Fam Equity

Assuming the 90 days horizon Fam Small Cap is expected to generate 1.37 times more return on investment than Fam Equity. However, Fam Small is 1.37 times more volatile than Fam Equity Income Fund. It trades about 0.06 of its potential returns per unit of risk. Fam Equity Income Fund is currently generating about -0.11 per unit of risk. If you would invest  2,903  in Fam Small Cap on September 15, 2024 and sell it today you would earn a total of  31.00  from holding Fam Small Cap or generate 1.07% return on investment over 90 days.

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

Fam Small Cap  vs.  Fam Equity Income Fund

Fam Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Fam Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fam Equity Income

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Fam Small and Fam Equity

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

The idea behind Fam Small Cap and Fam Equity Income Fund 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.