Correlation Between Wasatch Micro and Wasatch Small

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

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

Diversification Opportunities for Wasatch Micro and Wasatch Small

0.97

Correlation Coefficient

Wasatch Micro  Wasatch Small

Almost no diversification

The 3 months correlation between Wasatch and Wasatch is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Micro Cap and Wasatch Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Small Cap and Wasatch Micro 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 Micro Cap are associated (or correlated) with Wasatch Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Small Cap has no effect on the direction of Wasatch Micro i.e., Wasatch Micro and Wasatch Small go up and down completely randomly.

Pair Corralation between Wasatch Micro and Wasatch Small

Assuming the 90 days horizon Wasatch Micro Cap is expected to generate 1.07 times more return on investment than Wasatch Small. However, Wasatch Micro is 1.07 times more volatile than Wasatch Small Cap. It trades about 0.16 of its potential returns per unit of risk. Wasatch Small Cap is currently generating about 0.14 per unit of risk. If you would invest  768.00  in Wasatch Micro Cap on August 31, 2024 and sell it today you would earn a total of  111.00  from holding Wasatch Micro Cap or generate 14.45% return on investment over 90 days.

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

Wasatch Micro Cap  vs.  Wasatch Small Cap

Wasatch Micro Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Micro Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Wasatch Micro showed solid returns over the last few months and may actually be approaching a breakup point.

Wasatch Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wasatch Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Wasatch Micro and Wasatch Small

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

The idea behind Wasatch Micro Cap and Wasatch 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.