Correlation Between Small Cap and Fisher Investments

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

Diversification Opportunities for Small Cap and Fisher Investments

-0.74

Correlation Coefficient

Small Cap  Fisher Investments

Pay attention - limited upside

The 3 months correlation between Small and Fisher is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Fisher Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fisher Fixed Income 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 Fisher Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fisher Fixed Income has no effect on the direction of Small Cap i.e., Small Cap and Fisher Investments go up and down completely randomly.

Pair Corralation between Small Cap and Fisher Investments

Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Fisher Investments. In addition to that, Small Cap is 3.81 times more volatile than Fisher Fixed Income. It trades about -0.12 of its total potential returns per unit of risk. Fisher Fixed Income is currently generating about 0.11 per unit of volatility. If you would invest  860.00  in Fisher Fixed Income on December 29, 2024 and sell it today you would earn a total of  17.00  from holding Fisher Fixed Income or generate 1.98% 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.  Fisher Fixed Income

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.

Fisher Fixed Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fisher Fixed Income are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Fisher Investments 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 Fisher Investments

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

The idea behind Small Cap Equity and Fisher Fixed Income 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.