Correlation Between Small Company and Absolute Strategies

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

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

Diversification Opportunities for Small Company and Absolute Strategies

0.0

Correlation Coefficient

Small Company  Absolute Strategies

Pay attention - limited upside

The 3 months correlation between Small and Absolute is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Absolute Strategies Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Strategies and Small Company 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 Small Pany Growth are associated (or correlated) with Absolute Strategies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Strategies has no effect on the direction of Small Company i.e., Small Company and Absolute Strategies go up and down completely randomly.

Pair Corralation between Small Company and Absolute Strategies

If you would invest (100.00) in Absolute Strategies Fund on December 21, 2024 and sell it today you would earn a total of  100.00  from holding Absolute Strategies Fund or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Small Pany Growth  vs.  Absolute Strategies Fund

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Absolute Strategies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Absolute Strategies Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Absolute Strategies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Company and Absolute Strategies

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

The idea behind Small Pany Growth and Absolute Strategies 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.