Correlation Between Small Cap and The Gabelli

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

Diversification Opportunities for Small Cap and The Gabelli

0.83

Correlation Coefficient

Small Cap  The Gabelli

Very poor diversification

The 3 months correlation between Small and The is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and The Gabelli Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gabelli Small 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 The Gabelli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gabelli Small has no effect on the direction of Small Cap i.e., Small Cap and The Gabelli go up and down completely randomly.

Pair Corralation between Small Cap and The Gabelli

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the The Gabelli. In addition to that, Small Cap is 1.09 times more volatile than The Gabelli Small. It trades about -0.1 of its total potential returns per unit of risk. The Gabelli Small is currently generating about -0.04 per unit of volatility. If you would invest  4,323  in The Gabelli Small on December 28, 2024 and sell it today you would lose (113.00) from holding The Gabelli Small or give up 2.61% of portfolio value over 90 days.

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

Small Cap Stock  vs.  The Gabelli Small

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.

Gabelli Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Gabelli Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, The Gabelli 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 The Gabelli

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

The idea behind Small Cap Stock and The Gabelli Small 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.