Correlation Between Strategic Asset and Smallcap Growth

Can any of the company-specific risk be diversified away by investing in both Strategic Asset and Smallcap Growth 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 Strategic Asset and Smallcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Strategic Asset and Smallcap Growth

-0.06

Correlation Coefficient

Strategic Asset  Smallcap Growth

Good diversification

The 3 months correlation between Strategic and Smallcap is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Asset Management and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Growth and Strategic Asset 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 Strategic Asset Management are associated (or correlated) with Smallcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of Strategic Asset i.e., Strategic Asset and Smallcap Growth go up and down completely randomly.

Pair Corralation between Strategic Asset and Smallcap Growth

Assuming the 90 days horizon Strategic Asset Management is expected to under-perform the Smallcap Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, Strategic Asset Management is 4.63 times less risky than Smallcap Growth. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Smallcap Growth Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,048  in Smallcap Growth Fund on September 14, 2024 and sell it today you would earn a total of  102.00  from holding Smallcap Growth Fund or generate 9.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	82.54%
Values	Daily Returns

Strategic Asset Management  vs.  Smallcap Growth Fund

Strategic Asset Mana

Risk-Adjusted Performance

0 of 100

Weak

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

Smallcap Growth

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Smallcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Smallcap Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Strategic Asset and Smallcap Growth

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

The idea behind Strategic Asset Management and Smallcap Growth 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.