Correlation Between Small Cap and Thornburg Global

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

Diversification Opportunities for Small Cap and Thornburg Global

-0.18

Correlation Coefficient

Small Cap  Thornburg Global

Good diversification

The 3 months correlation between Small and Thornburg is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Thornburg Global Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Global Opp 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 Thornburg Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Global Opp has no effect on the direction of Small Cap i.e., Small Cap and Thornburg Global go up and down completely randomly.

Pair Corralation between Small Cap and Thornburg Global

Assuming the 90 days horizon Small Cap is expected to generate 2.87 times less return on investment than Thornburg Global. In addition to that, Small Cap is 2.48 times more volatile than Thornburg Global Opportunities. It trades about 0.04 of its total potential returns per unit of risk. Thornburg Global Opportunities is currently generating about 0.31 per unit of volatility. If you would invest  3,708  in Thornburg Global Opportunities on September 15, 2024 and sell it today you would earn a total of  88.00  from holding Thornburg Global Opportunities or generate 2.37% return on investment over 90 days.

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

Small Cap Stock  vs.  Thornburg Global Opportunities

Small Cap Stock

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Thornburg Global Opp

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thornburg Global Opportunities are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Thornburg Global 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 Thornburg Global

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

The idea behind Small Cap Stock and Thornburg Global Opportunities 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.