Correlation Between Small Company and Parnassus Equity

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

Diversification Opportunities for Small Company and Parnassus Equity

0.71

Correlation Coefficient

Small Company  Parnassus Equity

Poor diversification

The 3 months correlation between SMALL and Parnassus is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Fund and Parnassus Equity Incme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parnassus Equity Incme 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 Parnassus Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parnassus Equity Incme has no effect on the direction of Small Company i.e., Small Company and Parnassus Equity go up and down completely randomly.

Pair Corralation between Small Company and Parnassus Equity

Assuming the 90 days horizon Small Pany Fund is expected to under-perform the Parnassus Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Pany Fund is 1.08 times less risky than Parnassus Equity. The mutual fund trades about -0.23 of its potential returns per unit of risk. The Parnassus Equity Incme is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  6,763  in Parnassus Equity Incme on November 30, 2024 and sell it today you would lose (636.00) from holding Parnassus Equity Incme or give up 9.4% of portfolio value over 90 days.

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

Small Pany Fund  vs.  Parnassus Equity Incme

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 weak performance in the last few months, the Fund's fundamental drivers remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Parnassus Equity Incme

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parnassus Equity Incme has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential 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 Parnassus Equity

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

The idea behind Small Pany Fund and Parnassus Equity Incme 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.