Correlation Between Small Cap and Artisan Select

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

Diversification Opportunities for Small Cap and Artisan Select

-0.12

Correlation Coefficient

Small Cap  Artisan Select

Good diversification

The 3 months correlation between Small and Artisan is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Artisan Select Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Artisan Select Equity 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 Artisan Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Artisan Select Equity has no effect on the direction of Small Cap i.e., Small Cap and Artisan Select go up and down completely randomly.

Pair Corralation between Small Cap and Artisan Select

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Artisan Select. In addition to that, Small Cap is 1.34 times more volatile than Artisan Select Equity. It trades about -0.12 of its total potential returns per unit of risk. Artisan Select Equity is currently generating about 0.13 per unit of volatility. If you would invest  1,538  in Artisan Select Equity on December 29, 2024 and sell it today you would earn a total of  111.00  from holding Artisan Select Equity or generate 7.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Small Cap Equity  vs.  Artisan Select Equity

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.

Artisan Select Equity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Artisan Select Equity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Artisan Select may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Small Cap and Artisan Select

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

The idea behind Small Cap Equity and Artisan Select Equity 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .