Correlation Between Moderately Conservative and Omni Small-cap

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

By analyzing existing cross correlation between Moderately Servative Balanced and Omni Small Cap Value, you can compare the effects of market volatilities on Moderately Conservative and Omni Small-cap 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 Moderately Conservative with a short position of Omni Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Conservative and Omni Small-cap.

Diversification Opportunities for Moderately Conservative and Omni Small-cap

0.83

Correlation Coefficient

Moderately Conservative  Omni Small-cap

Very poor diversification

The 3 months correlation between Moderately and Omni is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Servative Balanced and Omni Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omni Small Cap and Moderately Conservative 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 Moderately Servative Balanced are associated (or correlated) with Omni Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omni Small Cap has no effect on the direction of Moderately Conservative i.e., Moderately Conservative and Omni Small-cap go up and down completely randomly.

Pair Corralation between Moderately Conservative and Omni Small-cap

Assuming the 90 days horizon Moderately Servative Balanced is expected to generate 0.55 times more return on investment than Omni Small-cap. However, Moderately Servative Balanced is 1.83 times less risky than Omni Small-cap. It trades about 0.01 of its potential returns per unit of risk. Omni Small Cap Value is currently generating about -0.09 per unit of risk. If you would invest  1,092  in Moderately Servative Balanced on December 2, 2024 and sell it today you would earn a total of  1.00  from holding Moderately Servative Balanced or generate 0.09% return on investment over 90 days.

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

Moderately Servative Balanced  vs.  Omni Small Cap Value

Moderately Conservative

Risk-Adjusted Performance

Very Weak

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

Omni Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Omni Small Cap Value 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 basic 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.

Pair Trading with Moderately Conservative and Omni Small-cap

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

The idea behind Moderately Servative Balanced and Omni Small Cap Value 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.