Correlation Between Small Company and Embark Small

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

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

Diversification Opportunities for Small Company and Embark Small

0.92

Correlation Coefficient

Small Company  Embark Small

Almost no diversification

The 3 months correlation between Small and Embark is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Fund and Embark Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embark Small Cap and Small Company 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 Small Pany Fund are associated (or correlated) with Embark Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embark Small Cap has no effect on the direction of Small Company i.e., Small Company and Embark Small go up and down completely randomly.

Pair Corralation between Small Company and Embark Small

Assuming the 90 days horizon Small Pany Fund is expected to under-perform the Embark Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Pany Fund is 1.18 times less risky than Embark Small. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Embark Small Cap is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,088  in Embark Small Cap on December 29, 2024 and sell it today you would lose (84.00) from holding Embark Small Cap or give up 7.72% of portfolio value over 90 days.

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

Small Pany Fund  vs.  Embark Small Cap

Small Pany Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Embark Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Embark Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Small Company and Embark Small

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

The idea behind Small Pany Fund and Embark 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.