Correlation Between Small Cap and John Hancock

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

Diversification Opportunities for Small Cap and John Hancock

0.93

Correlation Coefficient

Small Cap  John Hancock

Almost no diversification

The 3 months correlation between Small and John is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and John Hancock Disciplined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Hancock Disciplined 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 John Hancock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Hancock Disciplined has no effect on the direction of Small Cap i.e., Small Cap and John Hancock go up and down completely randomly.

Pair Corralation between Small Cap and John Hancock

Assuming the 90 days horizon Small Cap Equity is expected to generate 1.48 times more return on investment than John Hancock. However, Small Cap is 1.48 times more volatile than John Hancock Disciplined. It trades about 0.12 of its potential returns per unit of risk. John Hancock Disciplined is currently generating about 0.17 per unit of risk. If you would invest  3,619  in Small Cap Equity on September 3, 2024 and sell it today you would earn a total of  344.00  from holding Small Cap Equity or generate 9.51% return on investment over 90 days.

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

Small Cap Equity  vs.  John Hancock Disciplined

Small Cap Equity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

John Hancock Disciplined

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in John Hancock Disciplined are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, John Hancock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small Cap and John Hancock

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

The idea behind Small Cap Equity and John Hancock Disciplined 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.