Correlation Between Small Cap and Dreyfus Select

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

Diversification Opportunities for Small Cap and Dreyfus Select

-0.45

Correlation Coefficient

Small Cap  Dreyfus Select

Very good diversification

The 3 months correlation between Small and Dreyfus is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Dreyfus Select Managers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Select Managers 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 Dreyfus Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Select Managers has no effect on the direction of Small Cap i.e., Small Cap and Dreyfus Select go up and down completely randomly.

Pair Corralation between Small Cap and Dreyfus Select

Assuming the 90 days horizon Small Cap is expected to generate 2.11 times less return on investment than Dreyfus Select. In addition to that, Small Cap is 1.28 times more volatile than Dreyfus Select Managers. It trades about 0.02 of its total potential returns per unit of risk. Dreyfus Select Managers is currently generating about 0.06 per unit of volatility. If you would invest  1,841  in Dreyfus Select Managers on October 3, 2024 and sell it today you would earn a total of  314.00  from holding Dreyfus Select Managers or generate 17.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	73.72%
Values	Daily Returns

Small Cap Stock  vs.  Dreyfus Select Managers

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.

Dreyfus Select Managers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dreyfus Select Managers has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Dreyfus Select 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 Dreyfus Select

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

The idea behind Small Cap Stock and Dreyfus Select Managers 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.