Correlation Between Towle Deep and Snow Capital

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

Diversification Opportunities for Towle Deep and Snow Capital

0.55

Correlation Coefficient

Towle Deep  Snow Capital

Very weak diversification

The 3 months correlation between Towle and Snow is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Towle Deep Value and Snow Capital Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snow Capital Small 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 Snow Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snow Capital Small has no effect on the direction of Towle Deep i.e., Towle Deep and Snow Capital go up and down completely randomly.

Pair Corralation between Towle Deep and Snow Capital

Assuming the 90 days horizon Towle Deep Value is expected to under-perform the Snow Capital. In addition to that, Towle Deep is 1.2 times more volatile than Snow Capital Small. It trades about 0.0 of its total potential returns per unit of risk. Snow Capital Small is currently generating about 0.05 per unit of volatility. If you would invest  4,026  in Snow Capital Small on September 26, 2024 and sell it today you would earn a total of  1,354  from holding Snow Capital Small or generate 33.63% return on investment over 90 days.

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

Towle Deep Value  vs.  Snow Capital Small

Towle Deep Value

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Snow Capital Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Towle Deep and Snow Capital

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

The idea behind Towle Deep Value and Snow Capital Small 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .