Correlation Between Ivy Small and Ivy Balanced

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

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

Diversification Opportunities for Ivy Small and Ivy Balanced

0.75

Correlation Coefficient

Ivy Small  Ivy Balanced

Poor diversification

The 3 months correlation between Ivy and Ivy is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ivy Small Cap and Ivy Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Balanced and Ivy 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 Ivy Small Cap are associated (or correlated) with Ivy Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Balanced has no effect on the direction of Ivy Small i.e., Ivy Small and Ivy Balanced go up and down completely randomly.

Pair Corralation between Ivy Small and Ivy Balanced

Assuming the 90 days horizon Ivy Small Cap is expected to under-perform the Ivy Balanced. In addition to that, Ivy Small is 2.35 times more volatile than Ivy Balanced Fund. It trades about -0.1 of its total potential returns per unit of risk. Ivy Balanced Fund is currently generating about -0.02 per unit of volatility. If you would invest  2,309  in Ivy Balanced Fund on December 18, 2024 and sell it today you would lose (21.00) from holding Ivy Balanced Fund or give up 0.91% of portfolio value over 90 days.

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

Ivy Small Cap  vs.  Ivy Balanced Fund

Ivy Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ivy 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.

Ivy Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ivy Balanced Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Ivy Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ivy Small and Ivy Balanced

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

The idea behind Ivy Small Cap and Ivy Balanced 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.