Correlation Between Morningstar Defensive and Nuveen Small

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

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

Diversification Opportunities for Morningstar Defensive and Nuveen Small

-0.37

Correlation Coefficient

Morningstar Defensive  Nuveen Small

Very good diversification

The 3 months correlation between Morningstar and Nuveen is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and Nuveen Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Small Cap and Morningstar Defensive 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 Morningstar Defensive Bond are associated (or correlated) with Nuveen Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Small Cap has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Nuveen Small go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Nuveen Small

Assuming the 90 days horizon Morningstar Defensive Bond is expected to under-perform the Nuveen Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Morningstar Defensive Bond is 9.64 times less risky than Nuveen Small. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Nuveen Small Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,569  in Nuveen Small Cap on September 27, 2024 and sell it today you would earn a total of  181.00  from holding Nuveen Small Cap or generate 7.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Morningstar Defensive Bond  vs.  Nuveen Small Cap

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nuveen Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nuveen Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morningstar Defensive and Nuveen Small

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

The idea behind Morningstar Defensive Bond and Nuveen 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.