Correlation Between Small Capitalization and Advisory Research

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

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

Diversification Opportunities for Small Capitalization and Advisory Research

0.93

Correlation Coefficient

Small Capitalization  Advisory Research

Almost no diversification

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

Pair Corralation between Small Capitalization and Advisory Research

Assuming the 90 days horizon Small Capitalization is expected to generate 1.11 times less return on investment than Advisory Research. In addition to that, Small Capitalization is 1.09 times more volatile than Advisory Research All. It trades about 0.08 of its total potential returns per unit of risk. Advisory Research All is currently generating about 0.1 per unit of volatility. If you would invest  1,080  in Advisory Research All on September 4, 2024 and sell it today you would earn a total of  358.00  from holding Advisory Research All or generate 33.15% return on investment over 90 days.

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

Small Capitalization Portfolio  vs.  Advisory Research All

Small Capitalization

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Capitalization Portfolio are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Capitalization may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Advisory Research All

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advisory Research All are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Advisory Research showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Capitalization and Advisory Research

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

The idea behind Small Capitalization Portfolio and Advisory Research All 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.