Correlation Between Small Company and Income Fund

Can any of the company-specific risk be diversified away by investing in both Small Company and Income Fund 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 Income Fund 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 Income Fund Institutional, you can compare the effects of market volatilities on Small Company and Income Fund 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 Income Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Income Fund.

Diversification Opportunities for Small Company and Income Fund

-0.51

Correlation Coefficient

Small Company  Income Fund

Excellent diversification

The 3 months correlation between Small and INCOME is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Fund and Income Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund Institutional 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 Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund Institutional has no effect on the direction of Small Company i.e., Small Company and Income Fund go up and down completely randomly.

Pair Corralation between Small Company and Income Fund

Assuming the 90 days horizon Small Pany Fund is expected to generate 3.27 times more return on investment than Income Fund. However, Small Company is 3.27 times more volatile than Income Fund Institutional. It trades about 0.03 of its potential returns per unit of risk. Income Fund Institutional is currently generating about 0.04 per unit of risk. If you would invest  3,057  in Small Pany Fund on September 1, 2024 and sell it today you would earn a total of  455.00  from holding Small Pany Fund or generate 14.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Small Pany Fund  vs.  Income Fund Institutional

Small Pany Fund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Small Company may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Income Fund Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Company and Income Fund

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

The idea behind Small Pany Fund and Income Fund Institutional 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.