Correlation Between Smallcap Growth and Moderately Aggressive

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

Diversification Opportunities for Smallcap Growth and Moderately Aggressive

0.76

Correlation Coefficient

Smallcap Growth  Moderately Aggressive

Poor diversification

The 3 months correlation between Smallcap and Moderately is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Moderately Aggressive Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Aggressive 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 Moderately Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Aggressive has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Moderately Aggressive go up and down completely randomly.

Pair Corralation between Smallcap Growth and Moderately Aggressive

Assuming the 90 days horizon Smallcap Growth Fund is expected to under-perform the Moderately Aggressive. In addition to that, Smallcap Growth is 2.81 times more volatile than Moderately Aggressive Balanced. It trades about -0.31 of its total potential returns per unit of risk. Moderately Aggressive Balanced is currently generating about -0.21 per unit of volatility. If you would invest  1,214  in Moderately Aggressive Balanced on October 12, 2024 and sell it today you would lose (35.00) from holding Moderately Aggressive Balanced or give up 2.88% of portfolio value over 90 days.

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

Smallcap Growth Fund  vs.  Moderately Aggressive Balanced

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 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.

Moderately Aggressive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moderately Aggressive Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Moderately Aggressive 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 Moderately Aggressive

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

The idea behind Smallcap Growth Fund and Moderately Aggressive Balanced 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.