Correlation Between Blue Chip and Smallcap Fund

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

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

Diversification Opportunities for Blue Chip and Smallcap Fund

0.95

Correlation Coefficient

Blue Chip  Smallcap Fund

Almost no diversification

The 3 months correlation between Blue and Smallcap is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Smallcap Fund Fka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Fund Fka and Blue Chip 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 Blue Chip Fund are associated (or correlated) with Smallcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Fund Fka has no effect on the direction of Blue Chip i.e., Blue Chip and Smallcap Fund go up and down completely randomly.

Pair Corralation between Blue Chip and Smallcap Fund

Assuming the 90 days horizon Blue Chip Fund is expected to generate 0.85 times more return on investment than Smallcap Fund. However, Blue Chip Fund is 1.17 times less risky than Smallcap Fund. It trades about -0.08 of its potential returns per unit of risk. Smallcap Fund Fka is currently generating about -0.1 per unit of risk. If you would invest  4,411  in Blue Chip Fund on December 29, 2024 and sell it today you would lose (230.00) from holding Blue Chip Fund or give up 5.21% of portfolio value over 90 days.

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

Blue Chip Fund  vs.  Smallcap Fund Fka

Blue Chip Fund

Risk-Adjusted Performance

Very Weak

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

Smallcap Fund Fka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Fund Fka 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 Blue Chip and Smallcap Fund

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

The idea behind Blue Chip Fund and Smallcap Fund Fka 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.