Correlation Between Sarofim Equity and Deutsche Small

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

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

Diversification Opportunities for Sarofim Equity and Deutsche Small

0.93

Correlation Coefficient

Sarofim Equity  Deutsche Small

Almost no diversification

The 3 months correlation between Sarofim and Deutsche is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Sarofim Equity and Deutsche Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Small Cap and Sarofim Equity 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 Sarofim Equity are associated (or correlated) with Deutsche Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Small Cap has no effect on the direction of Sarofim Equity i.e., Sarofim Equity and Deutsche Small go up and down completely randomly.

Pair Corralation between Sarofim Equity and Deutsche Small

Assuming the 90 days horizon Sarofim Equity is expected to generate 1.64 times less return on investment than Deutsche Small. But when comparing it to its historical volatility, Sarofim Equity is 1.59 times less risky than Deutsche Small. It trades about 0.17 of its potential returns per unit of risk. Deutsche Small Cap is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,310  in Deutsche Small Cap on September 6, 2024 and sell it today you would earn a total of  389.00  from holding Deutsche Small Cap or generate 11.75% return on investment over 90 days.

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

Sarofim Equity  vs.  Deutsche Small Cap

Sarofim Equity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sarofim Equity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Sarofim Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deutsche Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Deutsche Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sarofim Equity and Deutsche Small

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

The idea behind Sarofim Equity and Deutsche 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.