Correlation Between Walthausen Small and Matthew 25

Can any of the company-specific risk be diversified away by investing in both Walthausen Small and Matthew 25 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 Walthausen Small and Matthew 25 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Walthausen Small Cap and Matthew 25 Fund, you can compare the effects of market volatilities on Walthausen Small and Matthew 25 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 Walthausen Small with a short position of Matthew 25. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walthausen Small and Matthew 25.

Diversification Opportunities for Walthausen Small and Matthew 25

0.87

Correlation Coefficient

Walthausen Small  Matthew 25

Very poor diversification

The 3 months correlation between Walthausen and Matthew is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Walthausen Small Cap and Matthew 25 Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthew 25 Fund and Walthausen 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 Walthausen Small Cap are associated (or correlated) with Matthew 25. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthew 25 Fund has no effect on the direction of Walthausen Small i.e., Walthausen Small and Matthew 25 go up and down completely randomly.

Pair Corralation between Walthausen Small and Matthew 25

Assuming the 90 days horizon Walthausen Small is expected to generate 1.43 times less return on investment than Matthew 25. But when comparing it to its historical volatility, Walthausen Small Cap is 1.01 times less risky than Matthew 25. It trades about 0.16 of its potential returns per unit of risk. Matthew 25 Fund is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,251  in Matthew 25 Fund on September 3, 2024 and sell it today you would earn a total of  600.00  from holding Matthew 25 Fund or generate 18.46% return on investment over 90 days.

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

Walthausen Small Cap  vs.  Matthew 25 Fund

Walthausen Small Cap

Risk-Adjusted Performance

12 of 100

Good

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

Matthew 25 Fund

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matthew 25 Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Matthew 25 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walthausen Small and Matthew 25

The main advantage of trading using opposite Walthausen Small and Matthew 25 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walthausen Small position performs unexpectedly, Matthew 25 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 Matthew 25 will offset losses from the drop in Matthew 25's long position.

The idea behind Walthausen Small Cap and Matthew 25 Fund 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.