Correlation Between Touchstone Small and Wasatch Small

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

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

Diversification Opportunities for Touchstone Small and Wasatch Small

0.84

Correlation Coefficient

Touchstone Small  Wasatch Small

Very poor diversification

The 3 months correlation between Touchstone and Wasatch is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Small Cap and Wasatch Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Small Cap and Touchstone Small 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 Touchstone Small Cap are associated (or correlated) with Wasatch Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Small Cap has no effect on the direction of Touchstone Small i.e., Touchstone Small and Wasatch Small go up and down completely randomly.

Pair Corralation between Touchstone Small and Wasatch Small

Assuming the 90 days horizon Touchstone Small Cap is expected to under-perform the Wasatch Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Touchstone Small Cap is 1.11 times less risky than Wasatch Small. The mutual fund trades about -0.44 of its potential returns per unit of risk. The Wasatch Small Cap is currently generating about -0.28 of returns per unit of risk over similar time horizon. If you would invest  4,538  in Wasatch Small Cap on October 5, 2024 and sell it today you would lose (282.00) from holding Wasatch Small Cap or give up 6.21% of portfolio value over 90 days.

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

Touchstone Small Cap  vs.  Wasatch Small Cap

Touchstone Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Wasatch Small Cap

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Wasatch Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Touchstone Small and Wasatch Small

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

The idea behind Touchstone Small Cap and Wasatch Small Cap 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.