Correlation Between Small Cap and Cutler Equity

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

Diversification Opportunities for Small Cap and Cutler Equity

0.31

Correlation Coefficient

Small Cap  Cutler Equity

Weak diversification

The 3 months correlation between Small and Cutler is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Cutler Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cutler 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 Cutler Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cutler Equity has no effect on the direction of Small Cap i.e., Small Cap and Cutler Equity go up and down completely randomly.

Pair Corralation between Small Cap and Cutler Equity

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Cutler Equity. In addition to that, Small Cap is 1.56 times more volatile than Cutler Equity. It trades about -0.12 of its total potential returns per unit of risk. Cutler Equity is currently generating about 0.04 per unit of volatility. If you would invest  2,630  in Cutler Equity on December 29, 2024 and sell it today you would earn a total of  44.00  from holding Cutler Equity or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Small Cap Equity  vs.  Cutler 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.

Cutler Equity

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cutler Equity are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Cutler Equity 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 Cutler Equity

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

The idea behind Small Cap Equity and Cutler 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.