Correlation Between Fam Value and Fam Small

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

Diversification Opportunities for Fam Value and Fam Small

0.96

Correlation Coefficient

Fam Value  Fam Small

Almost no diversification

The 3 months correlation between Fam and Fam is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Fam Value 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 Value 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 Value 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 Value i.e., Fam Value and Fam Small go up and down completely randomly.

Pair Corralation between Fam Value and Fam Small

Assuming the 90 days horizon Fam Value is expected to generate 1.12 times less return on investment than Fam Small. But when comparing it to its historical volatility, Fam Value Fund is 1.19 times less risky than Fam Small. It trades about 0.12 of its potential returns per unit of risk. Fam Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,742  in Fam Small Cap on September 15, 2024 and sell it today you would earn a total of  192.00  from holding Fam Small Cap or generate 7.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Fam Value Fund  vs.  Fam Small Cap

Fam Value Fund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Value Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fam Value 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

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.

Pair Trading with Fam Value and Fam Small

The main advantage of trading using opposite Fam Value and Fam Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fam Value 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 Value 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.