Correlation Between Deutsche and Hodges Small

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

By analyzing existing cross correlation between Deutsche Sp 500 and Hodges Small Cap, you can compare the effects of market volatilities on Deutsche and Hodges Small 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 Deutsche with a short position of Hodges Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche and Hodges Small.

Diversification Opportunities for Deutsche and Hodges Small

0.85

Correlation Coefficient

Deutsche  Hodges Small

Very poor diversification

The 3 months correlation between Deutsche and Hodges is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Sp 500 and Hodges Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hodges Small Cap and Deutsche 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 Deutsche Sp 500 are associated (or correlated) with Hodges Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hodges Small Cap has no effect on the direction of Deutsche i.e., Deutsche and Hodges Small go up and down completely randomly.

Pair Corralation between Deutsche and Hodges Small

Assuming the 90 days horizon Deutsche Sp 500 is expected to generate 0.17 times more return on investment than Hodges Small. However, Deutsche Sp 500 is 5.89 times less risky than Hodges Small. It trades about 0.1 of its potential returns per unit of risk. Hodges Small Cap is currently generating about -0.21 per unit of risk. If you would invest  5,107  in Deutsche Sp 500 on September 13, 2024 and sell it today you would earn a total of  50.00  from holding Deutsche Sp 500 or generate 0.98% return on investment over 90 days.

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

Deutsche Sp 500  vs.  Hodges Small Cap

Deutsche Sp 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Sp 500 are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Deutsche may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hodges Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hodges Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Hodges Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deutsche and Hodges Small

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

The idea behind Deutsche Sp 500 and Hodges Small 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.