Correlation Between Hodges Small and Auer Growth

Can any of the company-specific risk be diversified away by investing in both Hodges Small and Auer Growth 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 Hodges Small and Auer Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hodges Small Cap and Auer Growth Fund, you can compare the effects of market volatilities on Hodges Small and Auer Growth 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 Hodges Small with a short position of Auer Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hodges Small and Auer Growth.

Diversification Opportunities for Hodges Small and Auer Growth

0.49

Correlation Coefficient

Hodges Small  Auer Growth

Very weak diversification

The 3 months correlation between Hodges and Auer is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Hodges Small Cap and Auer Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auer Growth Fund and Hodges Small 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 Hodges Small Cap are associated (or correlated) with Auer Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auer Growth Fund has no effect on the direction of Hodges Small i.e., Hodges Small and Auer Growth go up and down completely randomly.

Pair Corralation between Hodges Small and Auer Growth

Assuming the 90 days horizon Hodges Small Cap is expected to generate 0.71 times more return on investment than Auer Growth. However, Hodges Small Cap is 1.41 times less risky than Auer Growth. It trades about -0.22 of its potential returns per unit of risk. Auer Growth Fund is currently generating about -0.17 per unit of risk. If you would invest  2,617  in Hodges Small Cap on November 29, 2024 and sell it today you would lose (595.00) from holding Hodges Small Cap or give up 22.74% of portfolio value over 90 days.

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

Hodges Small Cap  vs.  Auer Growth Fund

Hodges Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hodges Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Auer Growth Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auer Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Hodges Small and Auer Growth

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

The idea behind Hodges Small Cap and Auer Growth 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.