Correlation Between Highland Longshort and Avantis Small

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

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

Diversification Opportunities for Highland Longshort and Avantis Small

0.78

Correlation Coefficient

Highland Longshort  Avantis Small

Poor diversification

The 3 months correlation between Highland and Avantis is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Highland Longshort Healthcare and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Small Cap and Highland Longshort 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 Highland Longshort Healthcare are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of Highland Longshort i.e., Highland Longshort and Avantis Small go up and down completely randomly.

Pair Corralation between Highland Longshort and Avantis Small

Assuming the 90 days horizon Highland Longshort is expected to generate 2.99 times less return on investment than Avantis Small. But when comparing it to its historical volatility, Highland Longshort Healthcare is 7.5 times less risky than Avantis Small. It trades about 0.16 of its potential returns per unit of risk. Avantis Small Cap is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,717  in Avantis Small Cap on September 14, 2024 and sell it today you would earn a total of  89.00  from holding Avantis Small Cap or generate 5.18% return on investment over 90 days.

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

Highland Longshort Healthcare  vs.  Avantis Small Cap

Highland Longshort

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Longshort Healthcare are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Highland Longshort is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Avantis Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Avantis Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Highland Longshort and Avantis Small

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

The idea behind Highland Longshort Healthcare and Avantis Small Cap 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.