Correlation Between Wasatch Small and Eafe Pure

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

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

Diversification Opportunities for Wasatch Small and Eafe Pure

-0.35

Correlation Coefficient

Wasatch Small  Eafe Pure

Very good diversification

The 3 months correlation between Wasatch and Eafe is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Small Cap and The Eafe Pure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Pure and Wasatch Small 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 Wasatch Small Cap are associated (or correlated) with Eafe Pure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Pure has no effect on the direction of Wasatch Small i.e., Wasatch Small and Eafe Pure go up and down completely randomly.

Pair Corralation between Wasatch Small and Eafe Pure

Assuming the 90 days horizon Wasatch Small Cap is expected to under-perform the Eafe Pure. In addition to that, Wasatch Small is 1.17 times more volatile than The Eafe Pure. It trades about -0.1 of its total potential returns per unit of risk. The Eafe Pure is currently generating about 0.09 per unit of volatility. If you would invest  1,219  in The Eafe Pure on December 28, 2024 and sell it today you would earn a total of  61.00  from holding The Eafe Pure or generate 5.0% return on investment over 90 days.

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

Wasatch Small Cap  vs.  The Eafe Pure

Wasatch Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wasatch Small Cap 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.

Eafe Pure

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Pure are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Eafe Pure is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wasatch Small and Eafe Pure

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

The idea behind Wasatch Small Cap and The Eafe Pure 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.