Correlation Between Hodges Small and Schwartz Value

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

Diversification Opportunities for Hodges Small and Schwartz Value

0.11

Correlation Coefficient

Hodges Small  Schwartz Value

Average diversification

The 3 months correlation between Hodges and Schwartz is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Hodges Small Cap and Schwartz Value Focused in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwartz Value Focused 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 Schwartz Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwartz Value Focused has no effect on the direction of Hodges Small i.e., Hodges Small and Schwartz Value go up and down completely randomly.

Pair Corralation between Hodges Small and Schwartz Value

Assuming the 90 days horizon Hodges Small Cap is expected to under-perform the Schwartz Value. In addition to that, Hodges Small is 1.11 times more volatile than Schwartz Value Focused. It trades about -0.13 of its total potential returns per unit of risk. Schwartz Value Focused is currently generating about 0.1 per unit of volatility. If you would invest  5,265  in Schwartz Value Focused on December 30, 2024 and sell it today you would earn a total of  399.00  from holding Schwartz Value Focused or generate 7.58% return on investment over 90 days.

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

Hodges Small Cap  vs.  Schwartz Value Focused

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 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.

Schwartz Value Focused

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwartz Value Focused are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Schwartz Value may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Hodges Small and Schwartz Value

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

The idea behind Hodges Small Cap and Schwartz Value Focused 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.