Correlation Between Clearbridge Small and Fabxx

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

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

Diversification Opportunities for Clearbridge Small and Fabxx

-0.19

Correlation Coefficient

Clearbridge Small  Fabxx

Good diversification

The 3 months correlation between Clearbridge and Fabxx is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Clearbridge Small Cap and Fabxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabxx and Clearbridge 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 Clearbridge Small Cap are associated (or correlated) with Fabxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabxx has no effect on the direction of Clearbridge Small i.e., Clearbridge Small and Fabxx go up and down completely randomly.

Pair Corralation between Clearbridge Small and Fabxx

Assuming the 90 days horizon Clearbridge Small Cap is expected to under-perform the Fabxx. But the mutual fund apears to be less risky and, when comparing its historical volatility, Clearbridge Small Cap is 7.41 times less risky than Fabxx. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Fabxx is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  230.00  in Fabxx on December 2, 2024 and sell it today you would lose (75.00) from holding Fabxx or give up 32.61% of portfolio value over 90 days.

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

Clearbridge Small Cap  vs.  Fabxx

Clearbridge Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clearbridge 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 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.

Fabxx

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fabxx are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fabxx showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clearbridge Small and Fabxx

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

The idea behind Clearbridge Small Cap and Fabxx 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.