Correlation Between Small Cap and Pacific Funds

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

Diversification Opportunities for Small Cap and Pacific Funds

-0.17

Correlation Coefficient

Small Cap  Pacific Funds

Good diversification

The 3 months correlation between Small and Pacific is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Pacific Funds Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Funds 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 Pacific Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Funds Small has no effect on the direction of Small Cap i.e., Small Cap and Pacific Funds go up and down completely randomly.

Pair Corralation between Small Cap and Pacific Funds

Assuming the 90 days horizon Small Cap Stock is expected to generate 1.15 times more return on investment than Pacific Funds. However, Small Cap is 1.15 times more volatile than Pacific Funds Small Cap. It trades about 0.02 of its potential returns per unit of risk. Pacific Funds Small Cap is currently generating about -0.06 per unit of risk. If you would invest  1,202  in Small Cap Stock on October 15, 2024 and sell it today you would earn a total of  121.00  from holding Small Cap Stock or generate 10.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	16.57%
Values	Daily Returns

Small Cap Stock  vs.  Pacific Funds Small Cap

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 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.

Pacific Funds Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Funds Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Pacific Funds 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 Pacific Funds

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

The idea behind Small Cap Stock and Pacific Funds Small Cap 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.