Correlation Between Fam Equity-income and Fam Small

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

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

Diversification Opportunities for Fam Equity-income and Fam Small

0.74

Correlation Coefficient

Fam Equity-income  Fam Small

Poor diversification

The 3 months correlation between Fam and Fam is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Fam Equity Income Fund and Fam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Small Cap and Fam Equity-income 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 Equity Income Fund are associated (or correlated) with Fam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Small Cap has no effect on the direction of Fam Equity-income i.e., Fam Equity-income and Fam Small go up and down completely randomly.

Pair Corralation between Fam Equity-income and Fam Small

Assuming the 90 days horizon Fam Equity Income Fund is expected to generate 0.76 times more return on investment than Fam Small. However, Fam Equity Income Fund is 1.32 times less risky than Fam Small. It trades about -0.04 of its potential returns per unit of risk. Fam Small Cap is currently generating about -0.11 per unit of risk. If you would invest  5,832  in Fam Equity Income Fund on December 26, 2024 and sell it today you would lose (165.00) from holding Fam Equity Income Fund or give up 2.83% of portfolio value over 90 days.

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

Fam Equity Income Fund  vs.  Fam Small Cap

Fam Equity Income

Risk-Adjusted Performance

Very 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-income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fam Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fam 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 Fam Equity-income and Fam Small

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

The idea behind Fam Equity Income Fund and Fam 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.