Correlation Between Towle Deep and Zacks Small-cap

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

Diversification Opportunities for Towle Deep and Zacks Small-cap

0.79

Correlation Coefficient

Towle Deep  Zacks Small-cap

Poor diversification

The 3 months correlation between Towle and Zacks is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Towle Deep Value and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small 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 Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Towle Deep i.e., Towle Deep and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Towle Deep and Zacks Small-cap

Assuming the 90 days horizon Towle Deep Value is expected to under-perform the Zacks Small-cap. In addition to that, Towle Deep is 1.06 times more volatile than Zacks Small Cap E. It trades about 0.0 of its total potential returns per unit of risk. Zacks Small Cap E is currently generating about 0.01 per unit of volatility. If you would invest  2,990  in Zacks Small Cap E on December 2, 2024 and sell it today you would lose (3.00) from holding Zacks Small Cap E or give up 0.1% of portfolio value over 90 days.

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

Towle Deep Value  vs.  Zacks Small Cap E

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.

Zacks Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zacks Small Cap E 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 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 Zacks Small-cap

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

The idea behind Towle Deep Value and Zacks Small Cap E 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.

Check out your portfolio center.

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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.