Correlation Between Small Cap and Angel Oak

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

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

Diversification Opportunities for Small Cap and Angel Oak

-0.75

Correlation Coefficient

Small Cap  Angel Oak

Pay attention - limited upside

The 3 months correlation between Small and Angel is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Angel Oak Ultrashort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Angel Oak Ultrashort and Small 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 Small Cap Equity are associated (or correlated) with Angel Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Angel Oak Ultrashort has no effect on the direction of Small Cap i.e., Small Cap and Angel Oak go up and down completely randomly.

Pair Corralation between Small Cap and Angel Oak

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Angel Oak. In addition to that, Small Cap is 10.65 times more volatile than Angel Oak Ultrashort. It trades about -0.1 of its total potential returns per unit of risk. Angel Oak Ultrashort is currently generating about 0.24 per unit of volatility. If you would invest  971.00  in Angel Oak Ultrashort on December 26, 2024 and sell it today you would earn a total of  15.00  from holding Angel Oak Ultrashort or generate 1.54% return on investment over 90 days.

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

Small Cap Equity  vs.  Angel Oak Ultrashort

Small Cap Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Equity 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.

Angel Oak Ultrashort

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Angel Oak Ultrashort are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Angel Oak 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 Cap and Angel Oak

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

The idea behind Small Cap Equity and Angel Oak Ultrashort 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.