Correlation Between Walthausen Small and Towle Deep

Can any of the company-specific risk be diversified away by investing in both Walthausen Small and Towle Deep 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 Towle Deep 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 Towle Deep Value, you can compare the effects of market volatilities on Walthausen Small and Towle Deep 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 Towle Deep. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walthausen Small and Towle Deep.

Diversification Opportunities for Walthausen Small and Towle Deep

0.83

Correlation Coefficient

Walthausen Small  Towle Deep

Very poor diversification

The 3 months correlation between Walthausen and Towle is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Walthausen Small Cap and Towle Deep Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Towle Deep Value 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 Towle Deep. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Towle Deep Value has no effect on the direction of Walthausen Small i.e., Walthausen Small and Towle Deep go up and down completely randomly.

Pair Corralation between Walthausen Small and Towle Deep

Assuming the 90 days horizon Walthausen Small Cap is expected to generate 0.93 times more return on investment than Towle Deep. However, Walthausen Small Cap is 1.08 times less risky than Towle Deep. It trades about 0.01 of its potential returns per unit of risk. Towle Deep Value is currently generating about 0.0 per unit of risk. If you would invest  1,439  in Walthausen Small Cap on September 23, 2024 and sell it today you would earn a total of  8.00  from holding Walthausen Small Cap or generate 0.56% 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.  Towle Deep Value

Walthausen Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Walthausen 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.

Towle Deep Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Towle Deep Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Walthausen Small and Towle Deep

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

The idea behind Walthausen Small Cap and Towle Deep Value 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.