Correlation Between Smallcap Growth and California Bond

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

Diversification Opportunities for Smallcap Growth and California Bond

0.0

Correlation Coefficient

Smallcap Growth  California Bond

Pay attention - limited upside

The 3 months correlation between Smallcap and California is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Bond 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 California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and California Bond go up and down completely randomly.

Pair Corralation between Smallcap Growth and California Bond

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 5.87 times more return on investment than California Bond. However, Smallcap Growth is 5.87 times more volatile than California Bond Fund. It trades about 0.1 of its potential returns per unit of risk. California Bond Fund is currently generating about 0.09 per unit of risk. If you would invest  1,321  in Smallcap Growth Fund on September 4, 2024 and sell it today you would earn a total of  409.00  from holding Smallcap Growth Fund or generate 30.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Smallcap Growth Fund  vs.  California Bond Fund

Smallcap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

California Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond 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 California Bond

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

The idea behind Smallcap Growth Fund and California Bond Fund 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.