Correlation Between Smallcap Growth and Enrolled Investment

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

Diversification Opportunities for Smallcap Growth and Enrolled Investment

0.02

Correlation Coefficient

Smallcap Growth  Enrolled Investment

Significant diversification

The 3 months correlation between Smallcap and Enrolled is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Enrolled Investment Option in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enrolled Investment 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 Enrolled Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enrolled Investment has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Enrolled Investment go up and down completely randomly.

Pair Corralation between Smallcap Growth and Enrolled Investment

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 6.72 times more return on investment than Enrolled Investment. However, Smallcap Growth is 6.72 times more volatile than Enrolled Investment Option. It trades about 0.1 of its potential returns per unit of risk. Enrolled Investment Option is currently generating about -0.02 per unit of risk. If you would invest  1,564  in Smallcap Growth Fund on September 17, 2024 and sell it today you would earn a total of  113.00  from holding Smallcap Growth Fund or generate 7.23% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Enrolled Investment Option

Smallcap Growth

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enrolled Investment

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Smallcap Growth Fund and Enrolled Investment Option 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.