Correlation Between Hodges Small and Oberweis Micro-cap

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

Diversification Opportunities for Hodges Small and Oberweis Micro-cap

0.95

Correlation Coefficient

Hodges Small  Oberweis Micro-cap

Almost no diversification

The 3 months correlation between Hodges and Oberweis is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Hodges Small Cap and Oberweis Micro Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oberweis Micro Cap 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 Oberweis Micro-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oberweis Micro Cap has no effect on the direction of Hodges Small i.e., Hodges Small and Oberweis Micro-cap go up and down completely randomly.

Pair Corralation between Hodges Small and Oberweis Micro-cap

Assuming the 90 days horizon Hodges Small Cap is expected to generate 0.88 times more return on investment than Oberweis Micro-cap. However, Hodges Small Cap is 1.14 times less risky than Oberweis Micro-cap. It trades about 0.23 of its potential returns per unit of risk. Oberweis Micro Cap Fund is currently generating about 0.2 per unit of risk. If you would invest  2,208  in Hodges Small Cap on September 4, 2024 and sell it today you would earn a total of  398.00  from holding Hodges Small Cap or generate 18.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Hodges Small Cap  vs.  Oberweis Micro Cap Fund

Hodges Small Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hodges Small Cap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Hodges Small showed solid returns over the last few months and may actually be approaching a breakup point.

Oberweis Micro Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oberweis Micro Cap Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Oberweis Micro-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hodges Small and Oberweis Micro-cap

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

The idea behind Hodges Small Cap and Oberweis Micro Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.