Correlation Between Small Cap and Dunham Focused

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

Diversification Opportunities for Small Cap and Dunham Focused

0.88

Correlation Coefficient

Small Cap  Dunham Focused

Very poor diversification

The 3 months correlation between Small and Dunham is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Dunham Focused Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dunham Focused Large 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 Dunham Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dunham Focused Large has no effect on the direction of Small Cap i.e., Small Cap and Dunham Focused go up and down completely randomly.

Pair Corralation between Small Cap and Dunham Focused

Assuming the 90 days horizon Small Cap is expected to generate 1.24 times less return on investment than Dunham Focused. In addition to that, Small Cap is 1.23 times more volatile than Dunham Focused Large. It trades about 0.13 of its total potential returns per unit of risk. Dunham Focused Large is currently generating about 0.19 per unit of volatility. If you would invest  4,128  in Dunham Focused Large on September 12, 2024 and sell it today you would earn a total of  526.00  from holding Dunham Focused Large or generate 12.74% return on investment over 90 days.

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

Small Cap Stock  vs.  Dunham Focused Large

Small Cap Stock

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dunham Focused Large

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dunham Focused Large are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Dunham Focused may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small Cap and Dunham Focused

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

The idea behind Small Cap Stock and Dunham Focused Large 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..