Correlation Between Smallcap and Mai Managed

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

By analyzing existing cross correlation between Smallcap Sp 600 and Mai Managed Volatility, you can compare the effects of market volatilities on Smallcap and Mai Managed 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 with a short position of Mai Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap and Mai Managed.

Diversification Opportunities for Smallcap and Mai Managed

0.67

Correlation Coefficient

Smallcap  Mai Managed

Poor diversification

The 3 months correlation between Smallcap and Mai is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and Mai Managed Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mai Managed Volatility and Smallcap 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 Sp 600 are associated (or correlated) with Mai Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mai Managed Volatility has no effect on the direction of Smallcap i.e., Smallcap and Mai Managed go up and down completely randomly.

Pair Corralation between Smallcap and Mai Managed

Assuming the 90 days horizon Smallcap Sp 600 is expected to generate 5.46 times more return on investment than Mai Managed. However, Smallcap is 5.46 times more volatile than Mai Managed Volatility. It trades about 0.12 of its potential returns per unit of risk. Mai Managed Volatility is currently generating about 0.11 per unit of risk. If you would invest  2,750  in Smallcap Sp 600 on September 29, 2024 and sell it today you would earn a total of  185.00  from holding Smallcap Sp 600 or generate 6.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	66.67%
Values	Daily Returns

Smallcap Sp 600  vs.  Mai Managed Volatility

Smallcap Sp 600

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Smallcap Sp 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Smallcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mai Managed Volatility

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mai Managed Volatility are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mai Managed 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 and Mai Managed

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

The idea behind Smallcap Sp 600 and Mai Managed Volatility 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.