Correlation Between Smallcap Growth and Vivaldi Merger

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

Diversification Opportunities for Smallcap Growth and Vivaldi Merger

-0.23

Correlation Coefficient

Smallcap Growth  Vivaldi Merger

Very good diversification

The 3 months correlation between Smallcap and Vivaldi is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Vivaldi Merger Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vivaldi Merger Arbitrage 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 Vivaldi Merger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vivaldi Merger Arbitrage has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Vivaldi Merger go up and down completely randomly.

Pair Corralation between Smallcap Growth and Vivaldi Merger

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 1.57 times more return on investment than Vivaldi Merger. However, Smallcap Growth is 1.57 times more volatile than Vivaldi Merger Arbitrage. It trades about 0.15 of its potential returns per unit of risk. Vivaldi Merger Arbitrage is currently generating about -0.1 per unit of risk. If you would invest  1,549  in Smallcap Growth Fund on September 13, 2024 and sell it today you would earn a total of  162.00  from holding Smallcap Growth Fund or generate 10.46% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Vivaldi Merger Arbitrage

Smallcap Growth

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 11 (%) 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.

Vivaldi Merger Arbitrage

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Smallcap Growth Fund and Vivaldi Merger Arbitrage 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.