Correlation Between Smallcap Growth and Aggressive Growth

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

Diversification Opportunities for Smallcap Growth and Aggressive Growth

0.67

Correlation Coefficient

Smallcap Growth  Aggressive Growth

Poor diversification

The 3 months correlation between Smallcap and Aggressive is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Aggressive Growth Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Growth 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 Aggressive Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Growth has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Aggressive Growth go up and down completely randomly.

Pair Corralation between Smallcap Growth and Aggressive Growth

Assuming the 90 days horizon Smallcap Growth is expected to generate 2.0 times less return on investment than Aggressive Growth. But when comparing it to its historical volatility, Smallcap Growth Fund is 1.01 times less risky than Aggressive Growth. It trades about 0.05 of its potential returns per unit of risk. Aggressive Growth Portfolio is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,463  in Aggressive Growth Portfolio on October 5, 2024 and sell it today you would earn a total of  3,278  from holding Aggressive Growth Portfolio or generate 50.72% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Aggressive Growth Portfolio

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.

Aggressive Growth

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Growth Portfolio are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Aggressive Growth 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 Aggressive Growth

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

The idea behind Smallcap Growth Fund and Aggressive Growth Portfolio 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.