Correlation Between Fam Equity and Fam Small

Can any of the company-specific risk be diversified away by investing in both Fam Equity 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 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 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 with a short position of Fam Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fam Equity and Fam Small.

Diversification Opportunities for Fam Equity and Fam Small

0.89

Correlation Coefficient

Fam Equity  Fam Small

Very poor diversification

The 3 months correlation between Fam and Fam is 0.89. 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 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 i.e., Fam Equity and Fam Small go up and down completely randomly.

Pair Corralation between Fam Equity and Fam Small

Assuming the 90 days horizon Fam Equity is expected to generate 12.38 times less return on investment than Fam Small. But when comparing it to its historical volatility, Fam Equity Income Fund is 1.35 times less risky than Fam Small. It trades about 0.01 of its potential returns per unit of risk. Fam Small Cap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,712  in Fam Small Cap on September 15, 2024 and sell it today you would earn a total of  215.00  from holding Fam Small Cap or generate 7.93% return on investment over 90 days.

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

Fam Equity Income Fund  vs.  Fam Small Cap

Fam Equity Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Equity Income Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Fam Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Fam Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fam Equity and Fam Small

The main advantage of trading using opposite Fam Equity and Fam Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fam Equity 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.