Correlation Between Wasatch Small and Deutsche Small

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

Diversification Opportunities for Wasatch Small and Deutsche Small

0.91

Correlation Coefficient

Wasatch Small  Deutsche Small

Almost no diversification

The 3 months correlation between Wasatch and Deutsche is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Small Cap and Deutsche Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Small Cap 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 Deutsche Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Small Cap has no effect on the direction of Wasatch Small i.e., Wasatch Small and Deutsche Small go up and down completely randomly.

Pair Corralation between Wasatch Small and Deutsche Small

Assuming the 90 days horizon Wasatch Small Cap is expected to under-perform the Deutsche Small. In addition to that, Wasatch Small is 1.11 times more volatile than Deutsche Small Cap. It trades about -0.14 of its total potential returns per unit of risk. Deutsche Small Cap is currently generating about -0.04 per unit of volatility. If you would invest  5,038  in Deutsche Small Cap on December 30, 2024 and sell it today you would lose (143.00) from holding Deutsche Small Cap or give up 2.84% of portfolio value over 90 days.

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

Wasatch Small Cap  vs.  Deutsche Small Cap

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.

Deutsche Small Cap

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Wasatch Small Cap and Deutsche 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.