Correlation Between Small Cap and Perella Weinberg

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

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

Diversification Opportunities for Small Cap and Perella Weinberg

-0.31

Correlation Coefficient

Small Cap  Perella Weinberg

Very good diversification

The 3 months correlation between Small and Perella is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Perella Weinberg Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perella Weinberg Partners and Small Cap 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 Small Cap Premium are associated (or correlated) with Perella Weinberg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perella Weinberg Partners has no effect on the direction of Small Cap i.e., Small Cap and Perella Weinberg go up and down completely randomly.

Pair Corralation between Small Cap and Perella Weinberg

Considering the 90-day investment horizon Small Cap Premium is expected to generate 0.13 times more return on investment than Perella Weinberg. However, Small Cap Premium is 7.53 times less risky than Perella Weinberg. It trades about 0.0 of its potential returns per unit of risk. Perella Weinberg Partners is currently generating about -0.09 per unit of risk. If you would invest  2,463  in Small Cap Premium on December 19, 2024 and sell it today you would lose (3.00) from holding Small Cap Premium or give up 0.12% of portfolio value over 90 days.

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

Small Cap Premium  vs.  Perella Weinberg Partners

Small Cap Premium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Premium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Perella Weinberg Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Perella Weinberg Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Small Cap and Perella Weinberg

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

The idea behind Small Cap Premium and Perella Weinberg Partners 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.