Correlation Between Value Fund and Small-company Stock

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

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

Diversification Opportunities for Value Fund and Small-company Stock

0.38

Correlation Coefficient

Value Fund  Small-company Stock

Weak diversification

The 3 months correlation between Value and Small-company is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund Value and Small Company Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small-company Stock and Value Fund 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 Value Fund Value are associated (or correlated) with Small-company Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small-company Stock has no effect on the direction of Value Fund i.e., Value Fund and Small-company Stock go up and down completely randomly.

Pair Corralation between Value Fund and Small-company Stock

Assuming the 90 days horizon Value Fund Value is expected to generate 0.7 times more return on investment than Small-company Stock. However, Value Fund Value is 1.43 times less risky than Small-company Stock. It trades about 0.04 of its potential returns per unit of risk. Small Company Stock Fund is currently generating about -0.14 per unit of risk. If you would invest  5,149  in Value Fund Value on December 27, 2024 and sell it today you would earn a total of  79.00  from holding Value Fund Value or generate 1.53% return on investment over 90 days.

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

Value Fund Value  vs.  Small Company Stock Fund

Value Fund Value

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund Value are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small-company Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Company Stock Fund 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.

Pair Trading with Value Fund and Small-company Stock

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

The idea behind Value Fund Value and Small Company Stock 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.