Correlation Between Growth Fund and Small Company

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

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

Diversification Opportunities for Growth Fund and Small Company

0.96

Correlation Coefficient

Growth Fund  Small Company

Almost no diversification

The 3 months correlation between Growth and Small is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund Investor and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund and Growth Fund 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 Growth Fund Investor are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of Growth Fund i.e., Growth Fund and Small Company go up and down completely randomly.

Pair Corralation between Growth Fund and Small Company

Assuming the 90 days horizon Growth Fund Investor is expected to under-perform the Small Company. In addition to that, Growth Fund is 1.22 times more volatile than Small Pany Fund. It trades about -0.11 of its total potential returns per unit of risk. Small Pany Fund is currently generating about -0.09 per unit of volatility. If you would invest  1,656  in Small Pany Fund on December 26, 2024 and sell it today you would lose (108.00) from holding Small Pany Fund or give up 6.52% of portfolio value over 90 days.

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

Growth Fund Investor  vs.  Small Pany Fund

Growth Fund Investor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Growth Fund Investor 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.

Small Pany Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Growth Fund and Small Company

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

The idea behind Growth Fund Investor and Small Pany 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.