Correlation Between Steward Large and Steward Small-mid

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

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

Diversification Opportunities for Steward Large and Steward Small-mid

0.95

Correlation Coefficient

Steward Large  Steward Small-mid

Almost no diversification

The 3 months correlation between Steward and Steward is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Steward Large Cap and Steward Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Small Mid and Steward Large 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 Steward Large Cap are associated (or correlated) with Steward Small-mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Small Mid has no effect on the direction of Steward Large i.e., Steward Large and Steward Small-mid go up and down completely randomly.

Pair Corralation between Steward Large and Steward Small-mid

Assuming the 90 days horizon Steward Large is expected to generate 1.25 times less return on investment than Steward Small-mid. But when comparing it to its historical volatility, Steward Large Cap is 1.53 times less risky than Steward Small-mid. It trades about 0.22 of its potential returns per unit of risk. Steward Small Mid Cap is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,303  in Steward Small Mid Cap on September 5, 2024 and sell it today you would earn a total of  164.00  from holding Steward Small Mid Cap or generate 12.59% return on investment over 90 days.

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

Steward Large Cap  vs.  Steward Small Mid Cap

Steward Large Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Steward Large Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Steward Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Steward Small Mid

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Steward Large and Steward Small-mid

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

The idea behind Steward Large Cap and Steward Small Mid 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.