Correlation Between Small Capitalization and North Square

Can any of the company-specific risk be diversified away by investing in both Small Capitalization and North Square 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 North Square 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 North Square Kennedy, you can compare the effects of market volatilities on Small Capitalization and North Square 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 North Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and North Square.

Diversification Opportunities for Small Capitalization and North Square

0.21

Correlation Coefficient

Small Capitalization  North Square

Modest diversification

The 3 months correlation between Small and North is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and North Square Kennedy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Square Kennedy 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 North Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Square Kennedy has no effect on the direction of Small Capitalization i.e., Small Capitalization and North Square go up and down completely randomly.

Pair Corralation between Small Capitalization and North Square

Assuming the 90 days horizon Small Capitalization Portfolio is expected to under-perform the North Square. In addition to that, Small Capitalization is 6.8 times more volatile than North Square Kennedy. It trades about -0.1 of its total potential returns per unit of risk. North Square Kennedy is currently generating about 0.18 per unit of volatility. If you would invest  1,096  in North Square Kennedy on September 12, 2024 and sell it today you would earn a total of  165.00  from holding North Square Kennedy or generate 15.05% return on investment over 90 days.

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

Small Capitalization Portfolio  vs.  North Square Kennedy

Small Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Capitalization Portfolio 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 fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

North Square Kennedy

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Small Capitalization and North Square

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

The idea behind Small Capitalization Portfolio and North Square Kennedy 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.