Correlation Between Balanced Fund and Small Company

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

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

Diversification Opportunities for Balanced Fund and Small Company

0.87

Correlation Coefficient

Balanced Fund  Small Company

Very poor diversification

The 3 months correlation between Balanced and Small is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Institutional and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund and Balanced Fund 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 Balanced Fund Institutional are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of Balanced Fund i.e., Balanced Fund and Small Company go up and down completely randomly.

Pair Corralation between Balanced Fund and Small Company

Assuming the 90 days horizon Balanced Fund is expected to generate 2.92 times less return on investment than Small Company. But when comparing it to its historical volatility, Balanced Fund Institutional is 3.69 times less risky than Small Company. It trades about 0.34 of its potential returns per unit of risk. Small Pany Fund is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  3,178  in Small Pany Fund on September 1, 2024 and sell it today you would earn a total of  304.00  from holding Small Pany Fund or generate 9.57% return on investment over 90 days.

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

Balanced Fund Institutional  vs.  Small Pany Fund

Balanced Fund Instit

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Institutional are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Pany Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Company may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Balanced Fund and Small Company

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

The idea behind Balanced Fund Institutional and Small Pany 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.

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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.