Correlation Between Small Cap and Fuller Thaler

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

Diversification Opportunities for Small Cap and Fuller Thaler

0.99

Correlation Coefficient

Small Cap  Fuller Thaler

No risk reduction

The 3 months correlation between Small and Fuller is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Fuller Thaler Behavioral in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuller Thaler Behavioral 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 Fuller Thaler. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuller Thaler Behavioral has no effect on the direction of Small Cap i.e., Small Cap and Fuller Thaler go up and down completely randomly.

Pair Corralation between Small Cap and Fuller Thaler

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Fuller Thaler. In addition to that, Small Cap is 1.04 times more volatile than Fuller Thaler Behavioral. It trades about -0.13 of its total potential returns per unit of risk. Fuller Thaler Behavioral is currently generating about -0.11 per unit of volatility. If you would invest  4,462  in Fuller Thaler Behavioral on December 29, 2024 and sell it today you would lose (330.00) from holding Fuller Thaler Behavioral or give up 7.4% 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.  Fuller Thaler Behavioral

Small Cap Stock

Risk-Adjusted Performance

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 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.

Fuller Thaler Behavioral

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fuller Thaler Behavioral 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 Small Cap and Fuller Thaler

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

The idea behind Small Cap Stock and Fuller Thaler Behavioral 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.