Correlation Between Pzena Small and Pzena Mid

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

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

Diversification Opportunities for Pzena Small and Pzena Mid

0.88

Correlation Coefficient

Pzena Small  Pzena Mid

Very poor diversification

The 3 months correlation between Pzena and PZENA is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Pzena Small Cap and Pzena Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pzena Mid Cap and Pzena Small 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 Small Cap are associated (or correlated) with Pzena Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pzena Mid Cap has no effect on the direction of Pzena Small i.e., Pzena Small and Pzena Mid go up and down completely randomly.

Pair Corralation between Pzena Small and Pzena Mid

Assuming the 90 days horizon Pzena Small Cap is expected to under-perform the Pzena Mid. In addition to that, Pzena Small is 1.29 times more volatile than Pzena Mid Cap. It trades about -0.11 of its total potential returns per unit of risk. Pzena Mid Cap is currently generating about -0.04 per unit of volatility. If you would invest  1,227  in Pzena Mid Cap on December 27, 2024 and sell it today you would lose (30.00) from holding Pzena Mid Cap or give up 2.44% of portfolio value over 90 days.

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

Pzena Small Cap  vs.  Pzena Mid Cap

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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

Pair Trading with Pzena Small and Pzena Mid

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

The idea behind Pzena Small Cap and Pzena Mid 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.