Correlation Between Pzena Mid and Pzena Small

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

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

Diversification Opportunities for Pzena Mid and Pzena Small

0.98

Correlation Coefficient

Pzena Mid  Pzena Small

Almost no diversification

The 3 months correlation between Pzena and Pzena is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Pzena Mid Cap and Pzena Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pzena Small Cap and Pzena Mid 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 Pzena Mid Cap are associated (or correlated) with Pzena Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pzena Small Cap has no effect on the direction of Pzena Mid i.e., Pzena Mid and Pzena Small go up and down completely randomly.

Pair Corralation between Pzena Mid and Pzena Small

Assuming the 90 days horizon Pzena Mid Cap is expected to generate 0.61 times more return on investment than Pzena Small. However, Pzena Mid Cap is 1.64 times less risky than Pzena Small. It trades about -0.32 of its potential returns per unit of risk. Pzena Small Cap is currently generating about -0.32 per unit of risk. If you would invest  1,241  in Pzena Mid Cap on December 4, 2024 and sell it today you would lose (59.00) from holding Pzena Mid Cap or give up 4.75% of portfolio value over 90 days.

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

Pzena Mid Cap  vs.  Pzena Small Cap

Pzena Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pzena Mid 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 primary 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.

Pzena Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pzena 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 Pzena Mid and Pzena Small

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

The idea behind Pzena Mid Cap and Pzena 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.