Correlation Between William Blair and Applied Finance

Can any of the company-specific risk be diversified away by investing in both William Blair and Applied Finance 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 William Blair and Applied Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between William Blair Small Mid and Applied Finance Explorer, you can compare the effects of market volatilities on William Blair and Applied Finance 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 William Blair with a short position of Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of William Blair and Applied Finance.

Diversification Opportunities for William Blair and Applied Finance

0.93

Correlation Coefficient

William Blair  Applied Finance

Almost no diversification

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

Pair Corralation between William Blair and Applied Finance

Assuming the 90 days horizon William Blair is expected to generate 1.04 times less return on investment than Applied Finance. But when comparing it to its historical volatility, William Blair Small Mid is 1.25 times less risky than Applied Finance. It trades about 0.18 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,184  in Applied Finance Explorer on September 5, 2024 and sell it today you would earn a total of  244.00  from holding Applied Finance Explorer or generate 11.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

William Blair Small Mid  vs.  Applied Finance Explorer

William Blair Small

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in William Blair Small Mid are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, William Blair may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Applied Finance Explorer

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Finance Explorer are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Applied Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with William Blair and Applied Finance

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

The idea behind William Blair Small Mid and Applied Finance Explorer 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.