Correlation Between Financial Industries and William Blair

Can any of the company-specific risk be diversified away by investing in both Financial Industries and William Blair 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 Financial Industries and William Blair into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Financial Industries Fund and William Blair Small, you can compare the effects of market volatilities on Financial Industries and William Blair 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 Financial Industries with a short position of William Blair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and William Blair.

Diversification Opportunities for Financial Industries and William Blair

0.95

Correlation Coefficient

Financial Industries  William Blair

Almost no diversification

The 3 months correlation between Financial and William is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and William Blair Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on William Blair Small and Financial Industries 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 Financial Industries Fund are associated (or correlated) with William Blair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of William Blair Small has no effect on the direction of Financial Industries i.e., Financial Industries and William Blair go up and down completely randomly.

Pair Corralation between Financial Industries and William Blair

Assuming the 90 days horizon Financial Industries Fund is expected to generate 0.92 times more return on investment than William Blair. However, Financial Industries Fund is 1.09 times less risky than William Blair. It trades about 0.07 of its potential returns per unit of risk. William Blair Small is currently generating about 0.02 per unit of risk. If you would invest  1,510  in Financial Industries Fund on October 9, 2024 and sell it today you would earn a total of  301.00  from holding Financial Industries Fund or generate 19.93% return on investment over 90 days.

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

Financial Industries Fund  vs.  William Blair Small

Financial Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

William Blair Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Financial Industries and William Blair

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

The idea behind Financial Industries Fund and William Blair Small 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.