Correlation Between Fam Small and Fam Value

Can any of the company-specific risk be diversified away by investing in both Fam Small and Fam Value 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 Value 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 Value Fund, you can compare the effects of market volatilities on Fam Small and Fam Value 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 Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fam Small and Fam Value.

Diversification Opportunities for Fam Small and Fam Value

0.93

Correlation Coefficient

Fam Small  Fam Value

Almost no diversification

The 3 months correlation between Fam and Fam is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Fam Small Cap and Fam Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Value Fund 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 Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Value Fund has no effect on the direction of Fam Small i.e., Fam Small and Fam Value go up and down completely randomly.

Pair Corralation between Fam Small and Fam Value

Assuming the 90 days horizon Fam Small Cap is expected to under-perform the Fam Value. In addition to that, Fam Small is 1.01 times more volatile than Fam Value Fund. It trades about -0.11 of its total potential returns per unit of risk. Fam Value Fund is currently generating about -0.09 per unit of volatility. If you would invest  10,729  in Fam Value Fund on December 26, 2024 and sell it today you would lose (765.00) from holding Fam Value Fund or give up 7.13% of portfolio value over 90 days.

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

Fam Small Cap  vs.  Fam Value Fund

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 technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Fam Value Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fam Value Fund 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.

Pair Trading with Fam Small and Fam Value

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

The idea behind Fam Small Cap and Fam Value 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.