Correlation Between Smallcap Growth and Bridge Builder

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

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

Diversification Opportunities for Smallcap Growth and Bridge Builder

0.9

Correlation Coefficient

Smallcap Growth  Bridge Builder

Almost no diversification

The 3 months correlation between Smallcap and Bridge is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Bridge Builder Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Large and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Large has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Bridge Builder go up and down completely randomly.

Pair Corralation between Smallcap Growth and Bridge Builder

Assuming the 90 days horizon Smallcap Growth Fund is expected to under-perform the Bridge Builder. In addition to that, Smallcap Growth is 1.31 times more volatile than Bridge Builder Large. It trades about -0.32 of its total potential returns per unit of risk. Bridge Builder Large is currently generating about -0.3 per unit of volatility. If you would invest  2,824  in Bridge Builder Large on October 7, 2024 and sell it today you would lose (252.00) from holding Bridge Builder Large or give up 8.92% of portfolio value over 90 days.

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

Smallcap Growth Fund  vs.  Bridge Builder Large

Smallcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bridge Builder Large

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smallcap Growth and Bridge Builder

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

The idea behind Smallcap Growth Fund and Bridge Builder Large 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..