Correlation Between Small Cap and Multi Manager

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

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

Diversification Opportunities for Small Cap and Multi Manager

0.91

Correlation Coefficient

Small Cap  Multi Manager

Almost no diversification

The 3 months correlation between Small and Multi is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Multi Manager Directional Alte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Manager Direct and Small Cap 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 Small Cap Stock are associated (or correlated) with Multi Manager. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Manager Direct has no effect on the direction of Small Cap i.e., Small Cap and Multi Manager go up and down completely randomly.

Pair Corralation between Small Cap and Multi Manager

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Multi Manager. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Stock is 1.02 times less risky than Multi Manager. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Multi Manager Directional Alternative is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  761.00  in Multi Manager Directional Alternative on October 7, 2024 and sell it today you would lose (15.00) from holding Multi Manager Directional Alternative or give up 1.97% of portfolio value over 90 days.

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

Small Cap Stock  vs.  Multi Manager Directional Alte

Small Cap Stock

Risk-Adjusted Performance

0 of 100

Very Weak

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

Multi Manager Direct

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Multi Manager

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

The idea behind Small Cap Stock and Multi Manager Directional Alternative 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.