Correlation Between Towle Deep and Paradigm Micro-cap

Can any of the company-specific risk be diversified away by investing in both Towle Deep and Paradigm Micro-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 Towle Deep and Paradigm Micro-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Towle Deep Value and Paradigm Micro Cap Fund, you can compare the effects of market volatilities on Towle Deep and Paradigm Micro-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 Towle Deep with a short position of Paradigm Micro-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Towle Deep and Paradigm Micro-cap.

Diversification Opportunities for Towle Deep and Paradigm Micro-cap

0.98

Correlation Coefficient

Towle Deep  Paradigm Micro-cap

Almost no diversification

The 3 months correlation between Towle and Paradigm is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Towle Deep Value and Paradigm Micro Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm Micro Cap and Towle Deep 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 Towle Deep Value are associated (or correlated) with Paradigm Micro-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm Micro Cap has no effect on the direction of Towle Deep i.e., Towle Deep and Paradigm Micro-cap go up and down completely randomly.

Pair Corralation between Towle Deep and Paradigm Micro-cap

Assuming the 90 days horizon Towle Deep Value is expected to generate 0.85 times more return on investment than Paradigm Micro-cap. However, Towle Deep Value is 1.17 times less risky than Paradigm Micro-cap. It trades about -0.17 of its potential returns per unit of risk. Paradigm Micro Cap Fund is currently generating about -0.14 per unit of risk. If you would invest  1,597  in Towle Deep Value on December 29, 2024 and sell it today you would lose (218.00) from holding Towle Deep Value or give up 13.65% of portfolio value over 90 days.

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

Towle Deep Value  vs.  Paradigm Micro Cap Fund

Towle Deep Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Towle Deep 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 technical and fundamental 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.

Paradigm Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Paradigm Micro Cap Fund 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 Towle Deep and Paradigm Micro-cap

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

The idea behind Towle Deep Value and Paradigm Micro Cap Fund 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.