Correlation Between Small Cap and Harbor Bond

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

Diversification Opportunities for Small Cap and Harbor Bond

-0.7

Correlation Coefficient

Small Cap  Harbor Bond

Excellent diversification

The 3 months correlation between Small and Harbor is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Harbor Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbor Bond Fund 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 Harbor Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbor Bond Fund has no effect on the direction of Small Cap i.e., Small Cap and Harbor Bond go up and down completely randomly.

Pair Corralation between Small Cap and Harbor Bond

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Harbor Bond. In addition to that, Small Cap is 3.95 times more volatile than Harbor Bond Fund. It trades about -0.12 of its total potential returns per unit of risk. Harbor Bond Fund is currently generating about 0.14 per unit of volatility. If you would invest  995.00  in Harbor Bond Fund on December 29, 2024 and sell it today you would earn a total of  24.00  from holding Harbor Bond Fund or generate 2.41% 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.  Harbor Bond Fund

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.

Harbor Bond Fund

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harbor Bond Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Harbor Bond 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 Harbor Bond

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

The idea behind Small Cap Equity and Harbor Bond Fund 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.