Correlation Between Index Plus and Adirondack Small

Can any of the company-specific risk be diversified away by investing in both Index Plus and Adirondack Small 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 Index Plus and Adirondack Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Index Plus Largecap and Adirondack Small Cap, you can compare the effects of market volatilities on Index Plus and Adirondack Small 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 Index Plus with a short position of Adirondack Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Index Plus and Adirondack Small.

Diversification Opportunities for Index Plus and Adirondack Small

0.93

Correlation Coefficient

Index Plus  Adirondack Small

Almost no diversification

The 3 months correlation between Index and Adirondack is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Index Plus Largecap and Adirondack Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adirondack Small Cap and Index Plus 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 Index Plus Largecap are associated (or correlated) with Adirondack Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adirondack Small Cap has no effect on the direction of Index Plus i.e., Index Plus and Adirondack Small go up and down completely randomly.

Pair Corralation between Index Plus and Adirondack Small

Assuming the 90 days horizon Index Plus is expected to generate 1.5 times less return on investment than Adirondack Small. But when comparing it to its historical volatility, Index Plus Largecap is 1.56 times less risky than Adirondack Small. It trades about 0.21 of its potential returns per unit of risk. Adirondack Small Cap is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,847  in Adirondack Small Cap on September 1, 2024 and sell it today you would earn a total of  441.00  from holding Adirondack Small Cap or generate 15.49% return on investment over 90 days.

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

Index Plus Largecap  vs.  Adirondack Small Cap

Index Plus Largecap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Index Plus Largecap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Index Plus may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Adirondack Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adirondack Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly inconsistent basic indicators, Adirondack Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Index Plus and Adirondack Small

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

The idea behind Index Plus Largecap and Adirondack 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.