Correlation Between Smallcap Growth and Deutsche Small

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

Diversification Opportunities for Smallcap Growth and Deutsche Small

0.65

Correlation Coefficient

Smallcap Growth  Deutsche Small

Poor diversification

The 3 months correlation between Smallcap and Deutsche is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Deutsche Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Small Cap 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 Deutsche Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Small Cap has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Deutsche Small go up and down completely randomly.

Pair Corralation between Smallcap Growth and Deutsche Small

Assuming the 90 days horizon Smallcap Growth Fund is expected to under-perform the Deutsche Small. In addition to that, Smallcap Growth is 1.43 times more volatile than Deutsche Small Cap. It trades about -0.23 of its total potential returns per unit of risk. Deutsche Small Cap is currently generating about -0.11 per unit of volatility. If you would invest  5,424  in Deutsche Small Cap on December 4, 2024 and sell it today you would lose (389.00) from holding Deutsche Small Cap or give up 7.17% 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.  Deutsche Small Cap

Smallcap Growth

Risk-Adjusted Performance

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Deutsche Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deutsche Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Smallcap Growth and Deutsche Small

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

The idea behind Smallcap Growth Fund and Deutsche Small Cap 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.