Correlation Between Pzena Small and Pzena International

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

Diversification Opportunities for Pzena Small and Pzena International

-0.53

Correlation Coefficient

Pzena Small  Pzena International

Excellent diversification

The 3 months correlation between Pzena and Pzena is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Pzena Small Cap and Pzena International Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pzena International Value 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pzena International Value has no effect on the direction of Pzena Small i.e., Pzena Small and Pzena International go up and down completely randomly.

Pair Corralation between Pzena Small and Pzena International

Assuming the 90 days horizon Pzena Small Cap is expected to generate 1.64 times more return on investment than Pzena International. However, Pzena Small is 1.64 times more volatile than Pzena International Value. It trades about 0.1 of its potential returns per unit of risk. Pzena International Value is currently generating about -0.01 per unit of risk. If you would invest  1,477  in Pzena Small Cap on September 14, 2024 and sell it today you would earn a total of  131.00  from holding Pzena Small Cap or generate 8.87% return on investment over 90 days.

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

Pzena Small Cap  vs.  Pzena International Value

Pzena Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pzena Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pzena Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pzena International Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pzena International Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pzena International 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 International

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

The idea behind Pzena Small Cap and Pzena International Value 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .