Correlation Between Energy Fund and Sp Smallcap

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

By analyzing existing cross correlation between Energy Fund Class and Sp Smallcap 600, you can compare the effects of market volatilities on Energy Fund and Sp Smallcap 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 Energy Fund with a short position of Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Fund and Sp Smallcap.

Diversification Opportunities for Energy Fund and Sp Smallcap

0.81

Correlation Coefficient

Energy Fund  Sp Smallcap

Very poor diversification

The 3 months correlation between Energy and RYWAX is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Class and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 and Energy 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 Energy Fund Class are associated (or correlated) with Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap 600 has no effect on the direction of Energy Fund i.e., Energy Fund and Sp Smallcap go up and down completely randomly.

Pair Corralation between Energy Fund and Sp Smallcap

Assuming the 90 days horizon Energy Fund is expected to generate 1.67 times less return on investment than Sp Smallcap. But when comparing it to its historical volatility, Energy Fund Class is 1.09 times less risky than Sp Smallcap. It trades about 0.1 of its potential returns per unit of risk. Sp Smallcap 600 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,403  in Sp Smallcap 600 on September 11, 2024 and sell it today you would earn a total of  650.00  from holding Sp Smallcap 600 or generate 12.03% return on investment over 90 days.

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

Energy Fund Class  vs.  Sp Smallcap 600

Energy Fund Class

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fund Class are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Energy Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sp Smallcap 600

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Smallcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Energy Fund and Sp Smallcap

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

The idea behind Energy Fund Class and Sp Smallcap 600 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.