Correlation Between Federated Mid-cap and Dreyfus Smallcap

Can any of the company-specific risk be diversified away by investing in both Federated Mid-cap and Dreyfus Smallcap 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 Federated Mid-cap and Dreyfus Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federated Mid Cap Index and Dreyfus Smallcap Stock, you can compare the effects of market volatilities on Federated Mid-cap and Dreyfus Smallcap 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 Federated Mid-cap with a short position of Dreyfus Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Mid-cap and Dreyfus Smallcap.

Diversification Opportunities for Federated Mid-cap and Dreyfus Smallcap

0.97

Correlation Coefficient

Federated Mid-cap  Dreyfus Smallcap

Almost no diversification

The 3 months correlation between Federated and Dreyfus is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Federated Mid Cap Index and Dreyfus Smallcap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Smallcap Stock and Federated Mid-cap 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 Federated Mid Cap Index are associated (or correlated) with Dreyfus Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Smallcap Stock has no effect on the direction of Federated Mid-cap i.e., Federated Mid-cap and Dreyfus Smallcap go up and down completely randomly.

Pair Corralation between Federated Mid-cap and Dreyfus Smallcap

Assuming the 90 days horizon Federated Mid-cap is expected to generate 1.05 times less return on investment than Dreyfus Smallcap. But when comparing it to its historical volatility, Federated Mid Cap Index is 1.35 times less risky than Dreyfus Smallcap. It trades about 0.19 of its potential returns per unit of risk. Dreyfus Smallcap Stock is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,714  in Dreyfus Smallcap Stock on August 31, 2024 and sell it today you would earn a total of  329.00  from holding Dreyfus Smallcap Stock or generate 12.12% return on investment over 90 days.

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

Federated Mid Cap Index  vs.  Dreyfus Smallcap Stock

Federated Mid Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Mid Cap Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Federated Mid-cap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Dreyfus Smallcap Stock

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dreyfus Smallcap Stock are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Dreyfus Smallcap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Federated Mid-cap and Dreyfus Smallcap

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

The idea behind Federated Mid Cap Index and Dreyfus Smallcap Stock 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.