Correlation Between Fulcrum Diversified and Small Capitalization

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

By analyzing existing cross correlation between Fulcrum Diversified Absolute and Small Capitalization Portfolio, you can compare the effects of market volatilities on Fulcrum Diversified and Small Capitalization 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 Fulcrum Diversified with a short position of Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fulcrum Diversified and Small Capitalization.

Diversification Opportunities for Fulcrum Diversified and Small Capitalization

0.78

Correlation Coefficient

Fulcrum Diversified  Small Capitalization

Poor diversification

The 3 months correlation between Fulcrum and Small is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization and Fulcrum Diversified 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 Fulcrum Diversified Absolute are associated (or correlated) with Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Fulcrum Diversified i.e., Fulcrum Diversified and Small Capitalization go up and down completely randomly.

Pair Corralation between Fulcrum Diversified and Small Capitalization

Assuming the 90 days horizon Fulcrum Diversified Absolute is expected to generate 0.25 times more return on investment than Small Capitalization. However, Fulcrum Diversified Absolute is 3.95 times less risky than Small Capitalization. It trades about -0.18 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about -0.31 per unit of risk. If you would invest  944.00  in Fulcrum Diversified Absolute on October 11, 2024 and sell it today you would lose (11.00) from holding Fulcrum Diversified Absolute or give up 1.17% of portfolio value over 90 days.

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

Fulcrum Diversified Absolute  vs.  Small Capitalization Portfolio

Fulcrum Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fulcrum Diversified Absolute has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Fulcrum Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Capitalization Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Fulcrum Diversified and Small Capitalization

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

The idea behind Fulcrum Diversified Absolute and Small Capitalization Portfolio 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.