Correlation Between Smallcap Growth and Rational Strategic

Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Rational Strategic 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 Rational Strategic 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 Rational Strategic Allocation, you can compare the effects of market volatilities on Smallcap Growth and Rational Strategic 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 Rational Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Rational Strategic.

Diversification Opportunities for Smallcap Growth and Rational Strategic

0.88

Correlation Coefficient

Smallcap Growth  Rational Strategic

Very poor diversification

The 3 months correlation between Smallcap and Rational is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Rational Strategic Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Strategic 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 Rational Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Strategic has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Rational Strategic go up and down completely randomly.

Pair Corralation between Smallcap Growth and Rational Strategic

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 0.82 times more return on investment than Rational Strategic. However, Smallcap Growth Fund is 1.22 times less risky than Rational Strategic. It trades about 0.02 of its potential returns per unit of risk. Rational Strategic Allocation is currently generating about 0.01 per unit of risk. If you would invest  1,462  in Smallcap Growth Fund on October 22, 2024 and sell it today you would earn a total of  80.00  from holding Smallcap Growth Fund or generate 5.47% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Rational Strategic Allocation

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.

Rational Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rational Strategic Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Rational Strategic 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 Rational Strategic

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

The idea behind Smallcap Growth Fund and Rational Strategic Allocation 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.