Correlation Between Real Return and Perkins Small

Can any of the company-specific risk be diversified away by investing in both Real Return and Perkins 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 Real Return and Perkins Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Real Return Fund and Perkins Small Cap, you can compare the effects of market volatilities on Real Return and Perkins 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 Real Return with a short position of Perkins Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Return and Perkins Small.

Diversification Opportunities for Real Return and Perkins Small

0.22

Correlation Coefficient

Real Return  Perkins Small

Modest diversification

The 3 months correlation between Real and Perkins is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Real Return Fund and Perkins Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perkins Small Cap and Real Return 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 Real Return Fund are associated (or correlated) with Perkins Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perkins Small Cap has no effect on the direction of Real Return i.e., Real Return and Perkins Small go up and down completely randomly.

Pair Corralation between Real Return and Perkins Small

Assuming the 90 days horizon Real Return Fund is expected to generate 0.28 times more return on investment than Perkins Small. However, Real Return Fund is 3.63 times less risky than Perkins Small. It trades about 0.29 of its potential returns per unit of risk. Perkins Small Cap is currently generating about -0.2 per unit of risk. If you would invest  1,011  in Real Return Fund on December 2, 2024 and sell it today you would earn a total of  16.00  from holding Real Return Fund or generate 1.58% return on investment over 90 days.

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

Real Return Fund  vs.  Perkins Small Cap

Real Return Fund

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Real Return Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Real Return is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Perkins Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Perkins Small Cap 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.

Pair Trading with Real Return and Perkins Small

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

The idea behind Real Return Fund and Perkins 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.