Correlation Between Smallcap Fund and Absolute Capital

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

By analyzing existing cross correlation between Smallcap Fund Fka and Absolute Capital Asset, you can compare the effects of market volatilities on Smallcap Fund and Absolute Capital 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 Fund with a short position of Absolute Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Fund and Absolute Capital.

Diversification Opportunities for Smallcap Fund and Absolute Capital

0.9

Correlation Coefficient

Smallcap Fund  Absolute Capital

Almost no diversification

The 3 months correlation between Smallcap and Absolute is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Absolute Capital Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Asset and Smallcap Fund 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 Fund Fka are associated (or correlated) with Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Asset has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Absolute Capital go up and down completely randomly.

Pair Corralation between Smallcap Fund and Absolute Capital

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 1.29 times more return on investment than Absolute Capital. However, Smallcap Fund is 1.29 times more volatile than Absolute Capital Asset. It trades about -0.09 of its potential returns per unit of risk. Absolute Capital Asset is currently generating about -0.12 per unit of risk. If you would invest  2,549  in Smallcap Fund Fka on December 23, 2024 and sell it today you would lose (164.00) from holding Smallcap Fund Fka or give up 6.43% of portfolio value over 90 days.

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

Smallcap Fund Fka  vs.  Absolute Capital Asset

Smallcap Fund Fka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Fund Fka has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Absolute Capital Asset

Risk-Adjusted Performance

Very Weak

Over the last 90 days Absolute Capital Asset has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Smallcap Fund and Absolute Capital

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

The idea behind Smallcap Fund Fka and Absolute Capital Asset 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.