Correlation Between Smallcap Fund and Floating Rate

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

Diversification Opportunities for Smallcap Fund and Floating Rate

0.5

Correlation Coefficient

Smallcap Fund  Floating Rate

Very weak diversification

The 3 months correlation between Smallcap and Floating is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Floating Rate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate 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 Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Floating Rate go up and down completely randomly.

Pair Corralation between Smallcap Fund and Floating Rate

Assuming the 90 days horizon Smallcap Fund Fka is expected to under-perform the Floating Rate. In addition to that, Smallcap Fund is 27.0 times more volatile than Floating Rate Fund. It trades about -0.27 of its total potential returns per unit of risk. Floating Rate Fund is currently generating about -0.13 per unit of volatility. If you would invest  818.00  in Floating Rate Fund on October 10, 2024 and sell it today you would lose (1.00) from holding Floating Rate Fund or give up 0.12% of portfolio value over 90 days.

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

Smallcap Fund Fka  vs.  Floating Rate Fund

Smallcap Fund Fka

Risk-Adjusted Performance

0 of 100

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 fairly strong primary indicators, Smallcap Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Floating Rate

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Floating Rate 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 Fund and Floating Rate

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

The idea behind Smallcap Fund Fka and Floating Rate Fund 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.