Correlation Between Small Cap and Dreyfus High

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

Diversification Opportunities for Small Cap and Dreyfus High

0.44

Correlation Coefficient

Small Cap  Dreyfus High

Very weak diversification

The 3 months correlation between Small and Dreyfus is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Dreyfus High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus High Yield 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 Dreyfus High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus High Yield has no effect on the direction of Small Cap i.e., Small Cap and Dreyfus High go up and down completely randomly.

Pair Corralation between Small Cap and Dreyfus High

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Dreyfus High. In addition to that, Small Cap is 3.11 times more volatile than Dreyfus High Yield. It trades about -0.27 of its total potential returns per unit of risk. Dreyfus High Yield is currently generating about -0.36 per unit of volatility. If you would invest  1,120  in Dreyfus High Yield on October 10, 2024 and sell it today you would lose (29.00) from holding Dreyfus High Yield or give up 2.59% of portfolio value over 90 days.

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

Small Cap Equity  vs.  Dreyfus High Yield

Small Cap Equity

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dreyfus High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dreyfus High Yield has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Dreyfus High 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 Dreyfus High

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

The idea behind Small Cap Equity and Dreyfus High Yield 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.